New Year's Financial Resolutions

New Year's Financial Resolutions

Every New Year, millions of people resolve to better their lives. Many pledge to significantly improve their finances. As with other popular resolutions such as stopping smoking or losing weight, the key is to have a plan and stick to it. Try these simple steps to get in shape financially:

Create a spending plan—Determine your income and expenses for each month by reviewing your checkbook, bank statements, and receipts for the last year. Also, track your cash spending for 30 days, adding expenditures to the proper expense category. Record actual results regularly and update your plan quarterly. This will reveal where your money is being spent and provide information you need to manage it correctly.

Spend less—Spending less is easier than earning more, so look for opportunities to save money. Clip coupons, buy off-season, avoid impulse buying, and stop “cruising the mall.” Stop the small “leaks” of money; saving $2 a day on snack breaks at work yields $500 a year.

Create an emergency fund—Emergencies arise. Cars break down, ankles are sprained, and jobs are lost. Experts suggest you set aside three to six months of living expenses as a regular reserve. This fund will cover those inevitable, unexpected costs and keep you from borrowing money when they occur.

Eliminate debt—Paying off a credit card charging 17 percent annual interest is equivalent to investing money with a before-tax, guaranteed return of almost 20 percent. More than half of Americans have $7,000 or more of revolving credit card debt. Eliminating this debt saves more than $1,000 per year. Financial expert Dave Ramsey recommends a “debt snowball”—reallocating payments from retired debts to existing loans until all debts are consumed.

Start saving now—Saving early for long-term expenses such as retirement or college allows you to capitalize on the most important investing force: time. Multiply your efforts by using employer and government sponsored vehicles such as a 401k, IRA, and education IRAs.

Get a will—A will can ensure your assets will be divided according to your wishes, save thousands in taxes, and allow parents to designate their children’s caregivers. A simple will usually costs less than $200 and can be modified as your life changes. A “simple” will can be complicated for the average person and a do-it-yourself kit is not a bargain if something’s missing. Use a lawyer instead.

Give—Try to contribute something from each paycheck to your local church or charity. Remember, you’re rich compared to most of the world. Besides, giving helps focus on others and keeps finances in perspective—not letting them become an all-consuming part of our lives. Helping others meet their daily needs is a feeling no money can buy.

Start working today on these suggestions, and within a year you’ll be well on your way to achieving the financial fitness you’ve always desired.

John Nardini, a Michigan-based financial counselor, is a regular contributor to American Profile.

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