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Looking back, looking ahead, and physics and personal finance

January 3, 2011

Once at rest, it is easy to stay at rest.

Inertia is the resistance of any physical object to a change in its state of motion or rest. Even if you are not a physics major, you probably can remember this simple scenario that illustrates inertia. Let’s say you are driving in your car and have some chips in a cup between the seats in the front. When you have to come to a sudden stop by hitting the breaks, the chips keep on going and spill in your cup holder.

Inertia does not only have a role in physics. It can be applied to personal finance too. If you are doing or not doing something it is hard to change. This is common in a lot of our monthly bills. Many people still have a landline they pay for every month, even though they use their cell phone most of the time. Even though it would not take a lot to change this, the simple fact that it takes some action keeps it going.

This is where the start of a new year can be powerful. It can be a chance to look at things you are doing in your personal and financial life and make a change. It usually is tough to make this change, because of inertia, but it still is a natural starting or ending point.

The start of 2011 also is a good time to look back on the previous year and look at what went well and what can be improved. To help you get some ideas, you can take a look at what my family has done this past year and what we look to do in 2011.

The biggest accomplishment we had financially in 2010 was we completely paid off our student loan debt. This was nice to get off our back. Now, our only debt is the mortgage on our home. We were able to refinance, and thanks to a much lower interest rate, we cut our 30-year mortgage to 15 years by only paying a little more each month. We hope to pay our home off sooner than 15 years.

We also made some smaller changes that impact our finances. I think we have broken a trend by going to a landline for our home phone and using one cell phone on a pay-as-you go plan. Through our cable company we were able to add a home line for $10 more a month. This has saved us about $70 a month. We do not text or talk on the phone a whole lot, so this was an easy change to make.

Thanks in part to this saving, we were also able to increase the amount we are saving in a Roth IRA by $50 a month. It may not seem like a lot, but if we can keep paying that extra $50 a month for 35 years and have the stock market average 10 percent, that extra $50 will turn into $162,614 when we are ready to retire, tax free.

There are things we did not get done this past year, which we need to work on this year. First, we need a will. If Kerri and I both were to die, we do not have a lot of assets to pass along, but we do want to make sure Quincy is taken care of and our family knows who is going to take care of her and why. It is not a good thing to think about, but still very important.

I also want to change the life insurance coverage we have. We still have old whole life policies that do provide for a small cash value, but have higher premiums. We could probably switch to term life insurance and get five times the coverage for half the price. This will not build up money over time, but we can take the money we save and invest it so after our term life insurance has expired we have enough money saved that can take the place of life insurance.

Another financial goal we have for 2011 is to get on a monthly budget. We tried this for a couple of months last year, but we lacked discipline to keep it up. We have a new plan in place for this year and will try it again. If at first you do not succeed, try, try again. This is important as we are planning on taking a few out of state trips this year.

You may have had a great year financially in 2010, or had a few setbacks. The thing to analyze is where you are currently. Look at your monthly expenses. Are there things you are still paying for every month that you do not need? Now is a good time to fight the inertia.

Look ahead at 2011. What do you want to accomplish this year financially? Are there parts of your financial plan that you have put off, such as making a will or living on a budget? The new year is a great time for you to make these changes. While you are doing things to better you and your family’s finances, I will be vacuuming out the chips from our Suburban’s cup holder. Road trips are messy, especially when you have a 3-year-old.

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