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January 1, 2013

Financial Resolutions for the New Year

Another year is in the books, and it’s been a wild one—marked most notably for you, I’m sure, by the creation of this website. Pat yourself on the back for a great year, and get ready to gear up for another one.

With a new year, of course, come resolutions for how to improve in the coming months: vows to lose weight, exercise more, be nicer to people, and plenty of other goals. With all that ahead of you, why not take the opportunity to set some financial goals for the upcoming year?

Next week’s article will focus on how you can achieve your goals at a higher success rate. For now, let’s discuss some viable financial resolutions and how they matter to your long-term financial health:

Strive to put fewer expenses on your credit card. The availability of “free” money can seem really tempting at first, but putting expenses on your credit card that you can’t currently afford is almost never worth it. In fact, unless you’ve recently lost a job and need to float some expenses briefly (at low interest) until you can support yourself again, there is almost no reason to spend more on your credit card than you can afford to pay in the near future.



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Credit card debt can easily spiral out of control, and it also creates a self-fulfilling cycle of debt for the future. Remember learning about the miracle compound interest? Well, with credit cards, it works against you, as payments that you put off making continue to grow with time.

Plus, even though the credit available on your card might seem “free” at the time, being able to spend more now means being able to spend even less in the future: You won’t just have to cover your living expenses for that month—you’ll also have to make payments toward your past debt. And with that hanging over your head, you might be tempted to push even more expenses on to your credit card, which only worsens your burden for the future.

What’s a simpler solution to using a credit card? Try to use your card only as if it were a debit card, to the extent you can afford to do so. In other words, try to only put expenses on it that you could afford if they were deducted automatically from your checking account. They won’t be, of course—you’ll still have to pay your bill monthly—but approaching the card with that mindset should help control your spending.

Aim to save a certain percentage of your income for the future. A lot of the time, the biggest barrier to savings is the belief that you couldn’t possibly forego a certain amount of your money. Fortunately, when the curtain is pulled back, the truth is often that you can survive on less than your total amount of money.


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For example, studies by behavioral economists have found that people believe they would have a very hard time saving 10% of their income—but that they could easily survive on 90% of their money.

What’s the problem with that reasoning? Well, they represent the same percentage of savings, just presented in different ways. By playing around with how you perceive and implement your savings, it’s possible that you too can gain a boost of determination and perseverance just by making the task seem more manageable.

Why does saving your money matter? Well, saving money now ensures that you will have money in the future to cover any unexpected hardships—for instance, a period of unemployment, or unusually high bills. For adults, financial planners typically recommend that people try to save up roughly 6-12 months of living expenses so that they can survive a financial hardship.

Teenagers are fortunate that they often don’t have as many major expenses, like a mortgage, but they do have more years ahead of them for which to plan. All of that adds up to a major reason to save for the future. And while you’re at it, why not consider investing some of that mutual in index funds and letting it grow for the future?


2012 is now over, but planning for 2013 is just beginning. With a whole new year on the horizon, put your best foot forward and make sure that you are on solid financial footing. Avoiding your credit card and saving more of your money require effort, but the work to accomplish those goals will be well worth it in the end.
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