Four easy financial New Year’s resolutions

We are three weeks into the New Year and most of us have already broken our New Year’s resolutions. That means you need some new ones!

Only 8 percent of people stick to their resolutions for the entire year. Many people use the New Year as an opportunity to make some gigantic change. That’s great and all, but there are already too many competing priorities for your time and energy. The “extreme makeover” approach to resolutions is doomed for failure.

The secret to resolution success is to keep it simple and focus on one thing at a time. Set small, attainable goals that you can achieve. Then next year you can build upon them.

My four easy financial resolutions are begin saving for retirement, start an emergency fund, payoff credit card debt and get your Advanced Health Care Directive.

The very first thing you need to do is start saving the minimum in your work retirement plan. Contribute enough to get the full employer match, which is typically 6 percent of your pay. Never, ever pass up on free money! Get that employer match.

The next resolution is to start an emergency fund. Begin small by saving $1,000 in a separate savings account to be used only for those unexpected emergencies like fixing the car or a broken arm. A sale at Nordstrom’s is not an emergency! Once you get $1,000 saved up, move on to the next resolution.

The third, and toughest, resolution is to pay off all credit card debt. Write down all of your credit card balances and rank them from highest-to-lowest by interest rate. Pay the minimums on all credit cards except the one with the highest interest rate. Make the maximum payment you can afford on this highest interest rate credit card. Attack it like a dog!

Your monthly retirement contributions and credit card payments should total at least 15 percent of your total pay. So if you save 6 percent to your 401(k), then credit card monthly payments should equal 9 percent. That’ll help you figure out how much to pay on that highest interest rate card.

After the first credit card is paid off, start making the big payment on the next highest interest rate card. Continue this process of paying off the highest rate card until all of your credit cards are paid off. Be sure to update your debt balances to track your progress and stay motivated.

Becoming debt-free can take a while. Use this time to work on the final financial resolution which is to get an Advanced Health Care Directive (AHCD). This document allows someone to make medical decisions when you are unable. I recommend hiring an estate planning attorney and get a Power of Attorney for Finances while you’re at it. But if you want to try it on your own, a sample AHCD form can be found on the California Attorney General’s Web site at oag.ca.gov/consumers/general/adv_hc_dir

These are your four easy financial New Year’s resolutions. Print out this article and put it on the refrigerator. This will keep them top-of-mind and increase your chances for your success.

PS: If you already have the these four resolutions finished, then increase your emergency fund to six months of living expenses and max out contributions to your work retirement plan.

Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.