With a new year, resolutions come, and as the brouhaha fades, resolutions go. Gyms experience membership surges every January, only to have the crowds subside by February. The same is true of personal finance– hyphen related resolutions, which last only a short time until familiarity pulls us back to our old habits. Since your fitness goals and personal finance goals are battles won steadily over time, you have to be careful to get your routines together and ensure you stick to them, even if your resolution resolve begins to give way.

Saving and Investing
Many New Year promises involve saving for a home, saving for retirement or investing. Any of these goals are fine, but result expectations should never be dramatic — this is big-picture, long-term stuff. Impulsive spending remains the enemy here. Start saving small amounts at first, even though the excitement associated with a new financial plan creates the impulse to go big. You don’t want to put too much money away only to find you actually need those funds a short time later.

Automating contributions to retirement, investing or savings accounts is a great way to keep cash from slipping through your fingers as the year moves forward. Use your employer’s direct deposit facility or set up an automatic draft with your bank for every payday. Also, try to set up savings and investment accounts to which you don’t have easy access. In the era of everything-online-all-the-time banking, convenience is a double-edged sword. You may even benefit by avoiding traditional brick-and-mortar savings institutions and opting for remote savings accounts, which tend to have lower operating costs and generally offer higher interest rates, as well as limits to the number of monthly outgoing transfers.

Budget, Project and Budget Again
Clients tell me all the time that they’d like to start investing but don’t have the extra money. My immediate response is, always, “What does your monthly budget look like?” and is often met with a confused look. Disappointing, but it never fails to surprise me to learn that people do not record their cyclical expenses. Even the smallest company will pay a bookkeeper a full-time salary to keep close tabs on earnings vs. spending — why should your personal finances not get that same gold treatment?

Fortunately, there is plenty of free software available to help you with this. Mint.com, budgetpulse.com and money.strands.com are all solid user-friendly options. RBC customers have access to a product called “My Finance Tracker,” which comes free with an online banking account.

Once you’ve got an idea of your monthly expenses, you should be able to more precisely determine how much you can afford to save and where you’re really spending too much. As you compile more and more data over time, you’ll collect enough info to begin projecting major and minor expenses well into the future, in order to more accurately plan for those big financial goals.

A Penny Saved on Compound Interest Is More Than a Penny Earned
Taking an annual look at your outstanding loan accounts can do wonders for your bottom line. Go to ratessupermarket.ca to obtain a list of the best mortgage, credit, savings and insurance rates currently available. Even a slight savings in overall interest charges on a longer-term debt balance can mean a significant savings when compounding is taken into account (as it should be). Refinance to lower rates if possible.

Pledging collateral on a loan to reduce the interest rate is another good option. If you have a credit card balance of $10,000 at an interest rate of 15% and you pay it off over a period of two years, you would pay an additional $1,636.88 on the $10,000. If you can pledge collateral, like equity out of your home, you can reduce that rate significantly. Reducing that interest rate to 6%, for example, saves just under $1,000 over that same two-year period. And if you manage to put that saved money in an investment or retirement account, you can compound the benefits of refinancing.

Resolve to Not Need Resolutions
Resolutions are well and fine, but much better is a committed plan that eschews the radical New Year’s approach. Still, January always provides a little extra inspiration since resolution amelioration is an experience widely shared. Don’t let that momentum go to waste: Take any of the steps above and streamline your finances before the 2012 ‘honeymoon’ phase fizzles — then sit back and let your sleek automated personal finance system do its job. By the time December 31 rolls around again, that resolution will have grown into a lasting solution, and won’t require another big-picture shift.

——————–
Image courtesy of agrilifetoday.