I've read that only about 8 percent of people keep their New Year's resolutions, but that isn't stopping me from setting my financial goals. My No. 1 goal is to pay down debt I have as well as avoid accumulating any new debt. To stay on track with my stay-out-of-debt resolutions, I've enlisted the help of my best friend who has the same goals. Together, we plan to keep one another accountable.
Paying down credit card debt
While I typically have no credit card debt, I did make purchases on my credit card for holiday shopping. My friend has been battling with a high credit card balance for the last 10 years. With more than $30,000 worth of credit card debt, her goal is to get out of debt in the next year by living with relatives as she makes large payments toward her credit cards. She is paying off her credit cards with the highest interest rate first. I plan to pay off my credit card bills by early January so I don't have to pay any interest charges.
Recording every purchase
I've decided to do a better job of tracking my spending in the New Year. When I know I have to write down purchases in my notebook, I'm less inclined to make the purchase. I used to just look at my purchases online at my online banking site. However, keeping a spending diary actually motivates me to think before overspending. My girlfriend not only writes down how much she spends, but what she is feeling since she suspects she is an emotional spender.
Avoiding new debt
Instead of putting purchases on my credit card, I've decided to go old-school by spending cash. However, instead of using crumpled old bills, I'll use freshly minted dollars. New research shows that people tend to spend less money if they have crisp, clean bills. Moreover, I tend to spend less money in general when I'm dealing with cash as opposed to my credit cards. My friend is using the envelop system of budgeting, which means she will only spend money that she has put aside in various envelopes for specific categories such as food, gasoline or entertainment.
Keeping my goals simple
In the past, I've had trouble keeping my financial resolutions because I've had too many goals. I've also had unrealistic goals. This year, I have a simple goal of increasing my emergency fund by $200 a month. By the end of the year, I hope to have close to $10,000 saved. Meanwhile, my girlfriend already has twice as much saved in her rainy-day fund. With $20,000 saved, my girlfriend realized that she should actually take money out of her emergency fund to pay off part of her credit card debt. She plans to leave $10,000 for emergencies, and use another $10,000 to knock her credit card debt from $30,000 down to $20,000.
In addition to my small credit card balance, I owe about $100,000 on my house. My plan is to pay an extra $250 toward my mortgage each month so I can pay down my mortgage debt. Meanwhile, my friend is renting out her house so she can continue to pay down her mortgage. After living with her parents for a year, she will have built up more equity in her home and paid off her credit card debt. Her challenge is to keep her spending in check so she doesn't end up simply running up the same credit cards she has paid off. My challenge is to spend less than I make so I can put money aside for emergencies.
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