Most of us like to start the year with a few New Year’s resolutions. This year make one of your resolutions a plan to get your personal finances in order in 2009.

If there is one lesson we can take away from 2008 it’s that we’ve all been a bit sloppy in keeping our financial houses in order. Lenders were too lenient, borrowers too optimistic and investors too complacent. Those days are now over and we’ve all got to get our finances back on solid ground. Banks are no longer lending with reckless abandon and as borrowers we’ll need to adjust to that change. Going forward it will be critical to plan well ahead to address issues like resetting variable rate loans, managing credit card debt and borrowing under tighter lending standards. By starting now to improve your personal finances, you’ll have much better options down the road. Here are some action items for the New Year.

Pay off your credit card debt. In case you missed it, most cards have raised their interest rates so getting these balances down should be a priority. Also, these balances may not have been too important in the prior easy lending environment but today if you’re refinancing a mortgage or borrowing to buy a car you may find they are a show stopper.

Plan a strategy to refinance your home loan. Unless you’re blessed with a low fixed rate loan, you need to figure out how to handle an eventual refinancing. Rates are the lowest they have been but the lending standards are much tighter so don’t wait until the last minute to look at your refinancing options. Many people who easily got loans in the past may now have problems so you need to determine what aspects of your finances may make you an unattractive to lenders and work on fixing them now, before you need to refinance.

Trim your other debt. If you have a car loan or lease you may need to reconsider if carrying that debt is a good idea. It may be possible to downgrade your car and make this debt go away. When times were good and money was easy to borrow it sometimes made sense to incur this debt but those days are gone so rethink if you can really afford to carry these loans.

Build a cash reserve. Even if you have a lot of assets you should always hold a portion in cash. Financial emergencies happen and you don’t want to be forced to liquidate your investments at a bad time. For those who don’t have an investment cushion a cash reserve is a necessity to avoid taking on debt at a bad time, assuming you’ll even be able to borrow.

Work to get out of any/all variable rate debt. The weak economy has forced the Federal Reserve to push interest rates as low as they have ever been but they won’t stay this low forever. In fact a case can be made that we are laying the groundwork for substantial inflation and higher interest rates down the road that could dramatically alter the affordability of variable rate loans. Use this window of relatively low rates to get out of your variable rate loans while you can so you don’t get caught in the trap of a potential interest rate updraft later.

We had a tough year in 2008 but regardless of what 2009 brings you can make it a better year by benefiting from the lessons we’ve learned and strengthening your finances. Make getting your financial house in order a key New Year’s resolution. You’ll be glad you did.

Randy Gridley

January, 2009