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Dr. Don's 10 things to stop in 2006

This column is a bit of a twist when compared to top 10 columns from previous years. I'd like you to think about some things you need to stop doing in 2006 versus things you need to do. While you're at it, take some time during this holiday season to reflect on how you're doing financially and how your finances are going to help you get what you want out of life. Have a joyful and prosperous New Year.

Stop spending more than you make
It's really the key step in moving forward to achieve your financial and life goals. You have a limited amount of income that you can allocate between current consumption, investing for future goals and perhaps paying for past consumption. If you keep spending more than you make you're limiting your choices in the future.

Stop living paycheck to paycheck
There are plenty of divergent opinions as to how much you should have set aside in cash reserves as an emergency fund, but this tip really is more fundamental than that point. An emergency fund is a buffer to tide you over during a period of financial troubles. Not living paycheck to paycheck means that you have a liquidity cushion when it comes to meeting your day-to-day expenses. Get away from the point where you're one paycheck away from financial disaster by adding some liquidity to your financial picture.

Stop running up credit card balances
Deficits matter -- especially personal spending deficits. Interest rates have headed higher over the past two years with the Federal Reserve raising the targeted federal funds rate by a quarter percent 13 times in the last 13 Federal Reserve Open Market Committee meetings. The WSJ Prime Rate is now at 7.25 percent, up from 5.25 percent a year ago. Variable-rate credit cards are typically tied to the prime rate. Fixed rate credit card rates tend to lag these changes, but a fixed rate isn't a lifetime commitment, and you can expect these rates to trend higher too.

Stop using variable rate debt
OK, I don't really want you to stop using variable rate debt; I just want you to reconsider how you're using variable rate debt. The interest rates on the home equity lines of credit, or HELOC, adjustable-rate mortgages and variable rate credit cards keep moving higher. While Fed watchers hypothecate that we're getting pretty close to the end of a Fed tightening cycle, that doesn't mean that we're looking at the Fed starting a cycle of easier money any time soon. Fixed-rate mortgages tend to move with changes in the 10-year U.S. Treasury note. That yield has been fairly range bound between 4 percent and 5 percent since the Fed started tightening. Sure, 30-year fixed rate mortgages are over 6 percent, but they've been fairly range bound too, staying between 5.5 percent and 6.375 percent over that same time period.

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