Here are four New Year’s resolutions that can help you achieve a financially successful 2010:
Create a budget
Often when people experience financial difficulties, it because they are spending more than they are earning. This can be fixed with budgeting. A budget is a plan for where your money will go based on what you have coming in. Start by listing your current income and expenses. (A budgeting worksheet is available here.) Add anything you want to do in the future, such as save or pay extra toward debt. Next, total up all of your expenses. If they exceed your income, go back to the budget and determine what you can reduce or cut out. When you are done, put your budget in a visible place, such as the refrigerator door, and keep track of your spending so that you can stick to it.
Having savings provides financial security and helps you to achieve the things you want with minimal reliance on credit. It is a good idea to build an emergency fund containing at least three to six months worth of essential living expenses as well as set aside money for more long-term goals, such as retirement. Saving is easier if you make it an automatic process. If you have direct deposit through work, you should be able to have some of your paycheck directly deposited into your savings account. If not, you may be able to set up a regular automatic transfer from your checking account to your savings account.
Pay down your debt
Minimum payments are often set very low, so it could be years before you are debt-free if that is all you pay. By paying extra, you may be able to delete your debt by the end of the year or, at the very least, make a significant dent. If you have multiple accounts, focus your extra payments on one creditor at a time. Many people like to start with the debt with the lowest balance because it can be paid off the soonest. However, you will save the most money by starting with the debt with the highest interest rate. If you cannot pay extra on a regular basis, try to do it when you receive periodic income, such as a tax refund or bonus.
Improve your credit score
The two best things you can do to boost your score are always make your payments on time and keep the balances on revolving credit low relative to the credit limits. (Have your limits been slashed recently? You can ask your creditors to raise them or apply for new credit. Having new credit can lower your score initially, but long term, it helps to have high limits. However, if you tend to max out your accounts, it may be best to avoid getting more credit.) Additionally, don’t forget to periodically check your credit report for errors. You can get a free copy of your credit report yearly from www.annualcreditreport.com. If you see an error, dispute it with the relevant credit bureau.