Financial Resolutions for the New Year

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The New Year is a great time to overhaul your life for the better. One excellent place to start is by making solid financial resolutions that can help get you closer to your money goals, whether it's increasing your retirement savings or setting enough money aside for a down payment on a house. Here are a few you might consider adding to your own resolution list.

Prioritize Your Debts

Make a list of your liabilities and organize them by the annual interest rate. Plan to pay those with the highest interest rates off first (most likely your credit cards). It does no good to invest money while you're paying 19% or more in interest each year.

It could be a good idea to sell your certificate of deposits, savings bonds, or other cash holdings and use them to pay down your highest interest balance in full or in part. Here's an example: You owe $10,000 on your credit card and pay 19% interest annually ($1,900 per year). At the same time, you own a $10,000 certificate of deposit at a bank that pays you 4% interest ($400 a year). If you used the certificate to help pay your debt, then you would actually save yourself $1,500 a year.

Open an Individual Retirement Account (IRA)

If you haven't done so already, open an individual retirement account and start making contributions to it. Your financial planner or accountant should be able to tell you whether a traditional or Roth IRA is better for you. Both offer important tax advantages that can add up to a significant amount money by retirement.

Enroll in an Automatic Savings Plan (ASP)

If you have a financial resolution to save more money, then using an automated savings plan helps you follow through because the cash is drawn directly from your bank before you can get your hands on it.

Automatic savings plans are now offered for everything from brokerage accounts to government bonds. Usually, you can easily complete a few online forms, or simply call your broker and tell them you want a certain amount of money withdrawn from your checking or savings account each month, on a certain date, and deposited into your investment account.

Investors can also usually sign up for ASPs through a company's direct stock purchase plan. In these instances, the money is withdrawn and used to purchase additional shares of stock in the particular company. The United States government offers a similar service to those interested in investing in savings bonds.

Collect Your Change

Any time you pay for things with cash, only spend whole dollar amounts. If you go to the grocery store and your purchase total comes to $67.39, pay $70 in cash and pocket the change. The first thing you should do when you go home is to throw the money in a large container (empty water jugs are perfect). Think of it as a piggy bank for adults.

Some financial institutions and applications also offer digital versions of this spare change collection that automatically round all of your purchases up to the nearest dollar and put the difference into a separate account.

If you adhere to this policy and don’t spend any of the change, you're likely to save several thousand dollars over the course of a year. Use the money to pay down debt, buy stocks and bonds, or go on vacation.

Begin Using Personal Finance Software

Having a clear picture of your finances is an important part of reaching your financial goals. If you don't know where you are then it can be harder to figure out how you can get to where you want to go. But if you asked ten people on the street how much they spent last year on haircuts or movie tickets, nine of them probably couldn’t answer. With a few keystrokes, however, someone using personal finance software can easily track their finances and investments.

Read a Financial Book Each Month

Consistently committing 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.

By picking up a copy of "The Intelligent Investor" by Benjamin Graham, "One Up on Wall Street" by Peter Lynch, or "Common Stocks and Uncommon Profits" by Philip A. Fisher, you can learn how to value investments, set up your portfolio, and spot the characteristics of a classic growth stock directly from the people who did it most successfully.

Creating Your Resolutions

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 write a financial resolution that is clear and actionable like, “I have the balance on my credit card paid down to $0, over $5,000 in my savings account, and a fully funded IRA.”