by Shelley Seagler
A recent study published in the University of Scranton’s Journal of Clinical Psychology indicates that 45 percent of Americans will make New Year’s resolutions next week.
Some resolutions look good on paper, but unless they are executed appropriately, they may actually be counter-productive. Moreover, just because a resolution seems like the right thing to do, doesn’t mean it really is. Let’s take a second look at some of the most common New Year’s resolutions.
Resolution 1: Cut up your credit cards
If you are in debt or are not able to use credit cards responsibly, then you should absolutely cut up your cards and stop using credit. However, you shouldn’t blindly believe that using credit cards is akin to asking the devil to a dancehall.
If you’re able to use a credit card responsibly, then you should look into taking advantage of the rewards many credit cards offer. By using a credit card to pay for the things you normally buy, you can earn cash back, points, miles, or other rewards that can be significant over time. But before you even consider using a credit card, you absolutely must commit to:
1. Only buy things you can afford (items you could pay for in cash).
2. Payoff your entire credit card balance each month.
3. Use an emergency fund– not your credit card – to pay for emergencies.
4. Save for special purchases (vacations, gifts, etc.) ahead of time rather than using your credit card and paying it off later.
Additionally, now is a great time to call your credit card company and negotiate a lower APR. Many times, all it takes to get a better interest rate is a phone call.
Resolution 2: Join a gym
You’re probably thinking, “Starting January 2nd, I’m going to eat better and work out.” Good for you. However, before you run out and commit to a gym membership, work out at home for at least 30 days. If you can’t make yourself get up and work out for free, maybe you should reevaluate joining a gym, which can easily cost a minimum of $300 a year.
Resolution 3: Max out 401(k)
Saving money is fundamental to your financial success. In fact, how much you have saved is the primary determining factor of how comfortably you can expect to live in retirement. But how you save is as important as how much you save.
For example, if your employer does not offer a match to the contributions you make to your employer-sponsored plan, you need to rethink about which account (savings account, IRA, 401(k), etc.) you will contribute to first.
This contribution flowchart will help you save money in a way that allows you to get the most out of each dollar you save.
Resolution 4: Enjoy Life
I am all for living life to the fullest, but I believe you should do it within a budget. If things like taking vacations, playing more golf, or frequenting the spa are on your 2013 to-do list, make sure you have a clear idea of how much you will have to spend to enjoy these activities. Once again, check out sites like Groupon to see if you can get a good deal on the things you want to enjoy.
You should also look for areas where you can cut back. For example, if you want to start eating at nicer restaurants next year, cut back on eating out the rest of the time. Use the money you save by eating at home and taking your lunch to work for those special occasions.
Just remember, anytime you buy something today that you can’t afford, you are stealing from the future you. Don’t live the high life at the expense of your long-term financial sanity.
Resolution 5: Make a budget
Creating a budget is crucial to long-term financial stability. But there are some key things to consider. First, make sure you set realistic expectations. If you’ve been using personal financial statements, this will be easier. If not, pull your bank statements from the past six months and determine what you’ve been spending money on, how much you will need to maintain a reasonable standard of living, and where you can cut back. Free tools like those at Mint.com can help you get and stay on track.
Second, give yourself some flexibility and forgiveness. Budgeting is a lot like dieting; you’ll make mistakes from time to time, but don’t get derailed. Financial success doesn’t happen overnight. It is achieved through learned behavior and focusing on long term-goals.