Making Quality New Year's Resolutions

Try not spending money on anything extra for a month and you'll rack up savings, says our personal finance contributor. She advises people to keep a cash reserve and remember that every day is a new day to get your finances together.

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MADELEINE BRAND, host:

From NPR News, this is Day to Day. You know, this last year was pretty bad financially. So, what will 2009 bring and most importantly, what can you do to improve your own finances for this next year? Here with financial New Year's resolutions is our personal finance guru, Michelle Singletary. Hi, Michelle.

MICHELLE SINGLETARY: Hi. Happy New Year.

BRAND: Well, thank you. So, what are some lessons we've all learned from this year, lessons that perhaps don't involve asking for a bailout?

SINGLETARY: Well, you know, I think this recession has reminded us of two basic personal finance principles - cash is king, and devotion to debt is dumb. I think we just forgot about those two principles, that it's important to have a cash reserve. All the companies and corporations and people who are struggling right now, many of them, a majority of them forgot that principle, that you need to have a cash cushion.

And devotion to debt is dumb. I've talked about this on this program I don't how many times, and yet, the lesson didn't sink in that you have to have an aversion to debt. You are in bondage when you have debt. And if nothing else, at least this recession has reminded people of those two principles.

BRAND: OK. So how would you implement your advice? Coming into this next year, what are some financial resolutions that people should adopt?

SINGLETARY: You know, I think, first of all, you have to realize that every day is a new day to get your financial life together. So forget what happened in the past. Just make the commitment that you want to change, that it's so bad that you want something different.

And the number one thing you want to do is develop a budget. And it sounds so simple. You've heard it before. Many of you still don't do it. You've got to do that going into the new year, what's coming in and what's going out. And for a lot of folks, there's a lot less coming in. So if you know how much you have, you can plan going forward.

Secondly, stop using credit. I'm serious about this. If you're in credit card debt, like you can't pay that bill off next month, you are in trouble. You need to cut up that card, freeze it, put it, you know, under the bed, under whatever, get it out of your wallet.

And third, most importantly, automate your savings. If you don't do this already, go to your benefit office after you listen to this program or sometime soon and have a certain percentage of your income automatically funneled into an account. Now, and this is an account that you don't have an ATM with. You don't have a lot of access to. It's not your regular banking and savings account that you use to pay your household bills.

And lastly, commit to spending one month, not spending any money except to purchase necessities. So for the month of January, from the time you hear this, decide that for 30 days, I am only going to spend money on necessities, you know, food, medicine, things like that, nothing else. And you're going to put away that credit even if you're good with your money, and watch what you'll see. You'll see that you spend more than you think.

BRAND: And hopefully save more than you think.

SINGLETARY: Absolutely. You know, I try this exercise, you know, a couple times a year, and even I'm surprised, and everybody knows how frugal I am.

(Soundbite of laughter)

SINGLETARY: And even people who are good with their money try this experiment, and they come back to me. Almost - I tell you, 99 out of 100 people come back and say, I had no idea I was spending that much. And it really - and it takes that long to change your habit, about 21 to 30 days to change how you do things. Try this, and it really will change your life.

And during that month, keep a spending journal. You know, write down how much you spend on different things. Now, a lot of people are thinking, I know this. It's simple. But I tell you, if more people had listened to some of these things that I'm saying, we would not be as bad off as we are.

BRAND: Michelle Singletary, Day to Day's personal finance contributor. She writes the nationally syndicated column, The Color of Money. Michelle, thank you.

SINGLETARY: You're welcome.

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