If you dread making New Year's resolutions because you're afraid you'll fall short, take heart: One minor setback doesn't mean having to write off the rest of the year. You'll probably have more success if you start out with small steps and gain momentum as you go, whether it's losing weight, lowering debt or boosting retirement savings.
If your goal is to improve your personal finances, here are a few ideas to get you started:
Most dieters know that the key to success using Weight Watchers is to monitor every morsel you eat. You become more aware of and thus, more likely to change, behavioral patterns that caused you to overeat in the first place. You can use the same strategy when designing a livable budget.
For a month or two, write down every cent you spend: rent, food, gas, clothes, cable, insurance (health, auto, home), 401(k) contributions, entertainment – everything. The list will probably be eye-opening. Along with the usual suggestions like brown-bagging lunch more often and fewer to-go coffees, try these relatively painless ways to trim expenses:
- Pay bills on time and send at least the minimum amount due. You'll avoid late fees and related interest rate increases, and it will improve your credit score.
- Balance your checking account regularly and use in-network ATMs to avoid fees.
- If your employer offers flexible spending accounts, use them to pay health and dependent care expenses with pretax dollars. If you're in the 25 percent tax bracket that means expenses you'd have paid for anyway will cost 25 percent less.
- Reduce energy bills by turning down the thermostat, weatherproofing your home, turning off "energy vampire" appliances when not in use and buying energy-efficient appliances.
- Raise insurance deductibles and shop around for better rates.
With the money you save, start paying down debts more quickly. One strategy that often works is to list all outstanding balances and their corresponding interest rates. Then each month pay the minimum amount due on each account – except pay as much as possible on the highest-rate account or loan. Once it's paid off, move to the next-highest-rate account, and so on.
At the same time, start building an emergency fund. Although the ideal of having six to nine months' worth of expenses saved may sound insurmountable, don't be discouraged. Start slowly with a few dollars each month. It won't be missed and might just save you from needing an expensive short-term loan to cover emergency car repairs or another unexpected bill.
And finally, look to the future. Buying a home, paying for college and retirement are all big-ticket items that require sound budgeting and credit management skills. Here are several helpful resources:
- Find free budgeting tools, including interactive budget calculators, at the government's www.mymoney.gov, the National Foundation for Credit Counseling (www.nfcc.org), Mint.com (www.mint.com) and Visa Inc.'s Practical Money Skills for Life (www.practicalmoneyskills.com/budgeting).
- Wealth Watchers applies techniques gleaned from Weight Watchers to personal financial management (www.ewealthwatchers.com).
- MyFICO.com (www.myfico.com/CreditEducation) explains the ins and outs of credit reports and credit scores.
- What's My Score (also run by Visa) offers tips on ways to improve your credit score and a free credit score estimator (www.WhatsMyScore.org).