Your financial future

| Wednesday, Jan. 9, 2013, 10:12 a.m.

Washington has partially eliminated the fiscal cliff. Congress agreed to raise income taxes only on people earning more than $400,000.

However, all working people will still see their paycheck go down. This is because the extra 2 percent reduction we were getting from reduced Social Security taxes has been eliminated. That means that a person earning $50,000 will take home about $1,000 less per year.

Washington did not deal with the biggest problem, - over spending.

Congress postponed for two months the automatic spending cuts.

While the stock market celebrated the cliff deal, skyrocketing by 500 points, reality is probably ahead.

The leverage will change in the upcoming debates.

Congress and the President will have to make tough decisions, including some involving entitlement programs. When these issues surface, the market may well correct.

Often, people make New Year's resolutions. Hopefully, you have not broken all of yours yet.

If improving your financial life was one of them, you can start major improvements now.

If you never seem to have enough money, there are only two solutions - earn more or spend less.

Many people do not really realize what they actually spend all of their money on. While no one likes to follow a budget, it can be eye opening to chart your spending for one week. Carry a small notebook and keep track of where your money goes. You may discover some small changes that can make a big difference.

Maybe, try taking your lunch from home instead of buying it or filling a travel cup with coffee at home.

Evaluating things like cell phone and cable television may lead to savings.

It is important to pay yourself first. This means setting aside a certain small amount or whatever your savings goal is then pay all of your other bills.

You will probably spend most of the money that is left if you are like most people. But, by paying yourself first, you will be on your way to your goals.

Earning more depends on what stage of life you are in. If you are working, maybe you can get some overtime or a second job. If you are retired, maybe you can make your investments work harder.

Be careful of volatility.

I see way too many seniors taking on much more market risk than they need to or should be taking. Remember we have had two major meltdowns in the last decade.

Goldman Sachs issued a warning to bond holders last week. They said “you could lose your shirt.”

The reason for the warning is that interest rates started to go up recently. At today's low interest rates, it does not take much of an increase to have a big effect. If rates are currently 2 percent and go up to 3 percent, that is a 50 percent change. If rates were 10 percent and went up 1 percent, that would be closer to a 10 percent change.

Longer-term bonds are more sensitive to rate changes than short-term maturities. Remember, bond fund holders have the same risk or more than individual bond holders. This is because fund managers must liquidate assets to meet redemption requests. They may have to sell in unfavorable market conditions.

Make sure that your strategies for this New Year match today's new norm.

What worked in the past may not work as well today.

Gary Boatman is a certified financial planner and local businessman who serves as president of the Monessen Chamber of Commerce.

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