Did you know that most New Year’s Resolutions are eventually broken? Some experts say that it just doesn’t make sense to make them – you end up disappointing yourself. But I still think New Year’s, or the beginning of each year, is a good time to reflect on the past and decide on things to do differently in the future.
The key is to avoid vague resolutions or impossible goals and instead decide on a set of very specific, doable steps. For example, don’t say, “In 2011 I’ll get out of debt!” – It makes just as much sense as saying, “In 2011 I will lose weight.” Just as you need to break the “lose weight” resolution into small, manageable steps, you need to do the same when it comes to financial resolutions, and outline a detailed plan for how exactly you will achieve your financial goals for 2011.
Need ideas? Here are a few financial New Year’s resolutions to consider:
1. I will create a monthly budget
Preparing a budget isn’t difficult – it just takes time. It will probably take you about 2 hours, and this will be time well spent. Having a budget and sticking with it is one of the most important ways to improve your finances and to avoid unnecessary debt. It forces you to see the bigger picture of your finances, and to view single purchases in the context of that bigger picture.
2. I will save more aggressively
This is actually part of planning a budget, but it’s important enough to justify a separate resolution. Finding places where you can cut costs and saving more aggressively will enable you to repay any debt you might have faster and to build an emergency fund. When you go through the process of planning a budget, finding those expenses that you make out of habit but that you can live without is an extremely important step. In my case it was recreational online shopping. When I took a long, hard look at my financial behavior, I realized that I was in the habit of visiting my favorite online fashion store almost DAILY, even though I obviously didn’t need to buy new clothes that often.
3. I will keep paying off credit card balances aggressively and get closer to my goal of eliminating credit card debt
We all know that credit card debt is bad debt. The interest rate on a typical credit card balance is so high that it’s very difficult to pay down this debt, especially if only making the minimum payment. In fact, just making minimum payments can make even a small balance take years to pay off, at a cost of thousands of dollars in finance charges. Use these handy tips to pay off debt more quickly , and these tips to stay out of debt.
4. I will start an emergency fund
Should you pay off credit card debt first and then create an emergency fund? Experts are divided on this one. Here at Money Ning we feel that paying off credit card debt should be your first priority. If you don’t have credit card debt, or once it is paid off, it’s time to start saving for an emergency fund. Try to have at least 6 months’ worth of living expenses in your emergency fund. Yes, it will take time to save that much, but the sooner you start, the sooner you’ll get there.
Having an emergency fund will help you avoid resorting to using credit cards and incurring new credit card debt if you ever stumble into difficult times, lose your job or incur an unexpected major expense.
5. I will invest in my 401(k) plan, if one is available to me, up to the employer match
If you’re employed and your employer offers a 401(k) retirement plan that includes an employer match, not taking advantage of the match is like turning down free money! If you’re not doing so already, resolve to take full advantage of the employer match – and of the tax benefits that employee sponsored retirement plans offer, including the ability to invest pre-tax dollars, and the tax deferral which enables your money to grow tax free until it’s time to start withdrawals.
Will you share your point of view? Do you believe in making New Year’s resolutions, financial or otherwise? If you do, what is your main New Year resolution for 2011?