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.
Joshua Kennon, Investing or Beginners Expert, shares ten financial resolutions for the new year that we should consider adding to our agenda.
Financial Resolution 1: Know What You Want
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 have the balance on my credit card paid down to $0, over $5,000 in my savings account, and a fully funded IRA.”
Financial Resolution 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!
Financial Resolution 3: Open an IRA
If you haven’t done so already, open an individual retirement account (or IRA for short). 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.
Financial Resolution 4: Enroll in an Automatic Savings Plan
Automatic savings plans are now offered for everything from brokerage accounts to government bonds. Simply call your broker and tell them you want a certain amount of money withdrawn from your checking or savings account each month, on a certain date, and deposited into your investment account. This way, you are forced to save because the cash is drawn directly from your bank before you can get your hands on it. Investors can often sign up for ASP’s 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 In these instances, the money is withdrawn and used to purchase additional shares of stock in the particular company.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.
Financial Resolution 5: Close 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!
Financial Resolution 6: Make Money Doing What You Love
Most people can name at least one thing they are truly passionate about.
Financial Resolution 7: 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. 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. Use the money to pay down debt, buy stocks and bonds, or go on vacation.
Financial Resolution 8: Give Money
I’ve said this before and I’ll say it again: one of the most effective ways to realize the value of money is to give it to someone else. The next time you get your paycheck, take 5 percent of your salary in cash (the greenbacks in your pocket will make it seem far more real than if you simply wrote a check or used a debit card). Walk into a Starbucks or a Dunkin’ Donuts and anonymously pay for the other customer in line. If you pass a child in Wal-Mart staring at a new video game, take out your wallet and buy it for them. In both cases, the recipients are sure to remember your kindness for years to come. It is a powerful and effective way to change other people’s lives for the better while giving you a better sense of freedom financially. Suddenly, you realize just how much promise $20 contains.
Financial Resolution 9: Begin Using Personal Finance Software
Not to sound cliché, but knowledge is power. If I 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 find out. Here are ways to easily track your finances and investments. 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 like the occasional 20oz. bottle of Coca-Cola.
Financial Resolution 10: Read a Financial Book Each Month
If you want to learn to cook, you read cookbooks and spend hours a week in the kitchen. 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. In the pages of text, their death, retirement, or physical location is rendered meaningless, but their ideas, philosophies, and techniques live on. It’s as if you are inviting Benjamin Graham or Philip Fisher into your home simply by picking up a copy of their work and turning page after page. 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.
Originally appeared on TheBalance.com.