Whether you're concerned about retirement, or just looking to clean up your finances, the first step is to ask and answer three questions. Where are you now? Where do you want to be? And how do you get there?

 

To assess where you stand, you need to determine your net worth. Your net worth is the value of everything you own, called your assets, minus what you owe, called your liabilities. Your net worth is a better barometer of your finances than your income because your net worth represents all your past financial decisions.

 

Assets include items like your house, car, 401(k) plan, savings and household furnishings. When listing your liabilities, include your mortgage, car and student loans, credit cards and all other loans and debt. Subtract your liabilities from your assets to get your net worth.

 

You need to do this because if you don't know where you are, you can't get to where you want to go. Without goals, your chances for financial success are greatly diminished. First, set short-term goals. These are goals you can achieve in 12 months or less, like saving for a vacation or a down payment on a car. Next, set mid-term goals, which can be accomplished in one to five years. For example, saving a down payment on a house would be a reasonable mid-term goal.

 

Long-term goals can take five years or more. That would include things such as retirement, starting a business or saving for a college education for your children. After setting your goals, attach a dollar figure to each one and a time frame for achieving them. Without a dollar figure and a time frame, financial goals are just wishful thinking.

 

When your goals are set, you need to put in place the tools to help you achieve them. Set up a budget and stick to it. Start saving money. When you are about to make a purchase, ask yourself if what you're buying today is worth the money you lose toward future goals. At the same time, start reducing debt. If possible, have payments deducted directly from your checking account. Pay the full amount on your credit card bills as soon as they arrive. Also, consider switching to credit cards with lower rates.

 

Two areas consumers sometimes overlook are tax and investment strategies. First, carefully examine your tax return from last year to see where you can reduce your taxes for the upcoming year. One thing you'll need to do is keep track of all deductions, especially those for cash transactions. Include items such as mileage, charities, photocopies and other seemingly small amounts - it all adds up. Another hint: Contribute the maximum amount to a tax-deferred retirement plan.

 

Finally, resolve this year to start thinking about long-term capital gains. You may need to become more aggressive about the methods you choose to make your money grow. If you're not already doing so, consider investing.

Finally, remember that it can take several months for a new habit to take hold. Also bear in mind that the key to making financial resolutions work is to set clear-cut goals and work toward them.