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New Year Financial Resolutions

New Year Financial Resolutions

The New Year is a great time to overhaul your financial life for the better, and one excellent place to start is by making good resolutions that can help get you closer to your money goals. Here are a few you might consider adding to your own personal agenda:

1. Have a defined plan

Have a clear, concise financial goal for the year. It isn’t good enough to say, “I want to have my credit card paid down and more money in the bank”.

Instead, you should say something like, “I want to have the balance on my credit card paid down to $0 and over $5,000 in my savings account.”

2. Prioritize Your Debts

Not all debt is equal. Make a list of your liabilities and organize them by the annual interest rate.

Those with the highest rates (most likely your credit card debt) should be paid off immediately. It does no good to invest money while you are paying 19%+ each year. In a lot of cases, the wisest course of action is to sell any certificate of deposits, savings bonds or other cash holdings and use them to pay the balance. Why? If you owe $10,000 on your credit card and pay 19% interest annually ($1,900 per year), while at the same time, own a $10,000 certificate of deposit at a bank, paying you 4% interest ($400 a year), you would actually save yourself $1,500 a year by paying the debt!

3. Setup an Automatic Savings Plan

Automatic savings plans are now offered for everything from brokerage accounts to government bonds. Simply call your Finance Detective broker and tell them you want a certain amount of money withdrawn from your checking or savings account each month, on a certain date, and deposited into your investment account. This way, you are forced to save because the cash is drawn directly from your bank before you can get your hands on it.

4. Close any Unnecessary Accounts

Banks and financial institutions charge fees for everything under the sun. Is it really necessary to have several credit or checking accounts? Although there are exceptions, in the vast majority of cases the answer is a firm no! To put things into perspective: imagine your bank charges you $8 each month for your checking account. In thirty years, that $8 may have added up to more than $8,500 after taxes!

5. Collect Your Change

Any time you make purchases with cash, only spend whole dollar amounts.

If you go to the grocery store and your ticket comes to $67.39, pay $70 in cash and pocket the change. The first thing you should do when you go home is throw the money in a large container (empty water jugs are perfect.) If you adhere to this policy and don’t spend any of the change, you are likely to save several thousand dollars over the course of a year.

6. Begin Using Personal Finance Software

Knowledge is power. If I asked ten people on the street how much they spent last year on books or movie tickets, nine of them probably couldn’t answer. With a few keystrokes, however, someone using personal finance software such as Microsoft Money or Quicken can find out. Personally, I print a report at the end of every December and spend an evening studying and going over my income and expenditures for the year. I’m often surprised at the amount I spend on small items such as ATM bank fees and coffees.

7. Read a Financial Book Each Month

If you want to learn to cook, you read cookbooks. If you want to learn to fix an engine, you ask someone to show you. The printed word is amazing in that it allows you to communicate directly with the most brilliant financial minds of the past century. By picking up a copy of The Intelligent Investor, One Up on Wall Street, or Common Stocks and Uncommon Profits, you can be taught how to value investments, set up your portfolio, and spot the characteristics of a classic growth stock directly from the men who did it most successfully. Consistently applying yourself to learn as much as you can about the financial markets, the nature of money and investments in general is absolutely essential to creating long-term wealth.