Future Home Buyers Should Get Finances in Order Sooner Rather Than Later

If your goal is to get your finances real-estate-ready in 2009, there's not a moment to lose. While the real estate and financial markets aren't expected to do much in the first half of the year, they could pick up positive momentum in the second half, leading to a much more active 2010.

If that's the case, and you decide to buy a home, you'll want to have your finances in order. If you have a mortgage but are underwater, you might need to boost your savings to qualify for a loan modification or to refinance.

In last week's column, I suggested that you put yourself on a budget, pay off your charge cards, and pay yourself first and last as a way of building up your cash reserves.

But there are other ways to boost your personal finances, especially if you've been through a foreclosure, short sale or bankruptcy. Focus on raising your credit score and amassing cash.

Future home buyers should resolve to:

· Pay all of your bills on time. This is especially important if you're trying to reestablish your credit history after a financial crisis. While the credit rebuilding process can take years, paying bills on time helps to show a pattern of progress. Even a single late payment can drop your credit score by 50 to 100 points.

· Save your change. Every day when you get home, empty your pockets or wallet of change into a glass jar. After two weeks, drop the change and your lowest denomination bill into the jar. At the end of a month or two, take it to the bank.

· Contribute the maximum to your retirement plan. Although the financial markets are down as much as 45 percent from their high point of October 2007, it's still important to save for your retirement, preferably inside a 401(k) or 403(b) plan.

If your employer offers you a retirement plan with a company match, take full advantage of it. Even if your employer doesn't match your contributions, you should still open up a plan and salt away cash.

Traditional 401(k) retirement plans offer tax-deductible and tax-deferred growth. That means your money is growing far faster than if you had to use after-tax dollars or if you had to pay taxes on your earnings each year. If your employer matches your contributions, every dollar of that match is free money.

If your employer doesn't offer a 401(k) plan and you qualify for a Roth IRA, open one.

· Resist the temptation to use your 401(k) or IRA as a piggy bank.