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Take that New Year’s resolution to the bank

Want to save money or boost your earnings in the coming year? TODAY Financial editor Jean Chatzky shares tips on how to get your finances into shape for 2008.
/ Source: TODAY contributor

About half of all Americans make New Year's resolutions when the clock strikes midnight on Jan. 1. Some people vow to use their gym membership or cut back their cookie intake. A lot of people promise to whip their finances into shape by paying down credit card debt or upping their savings contributions. But statistics show that only about a quarter of us actually stick with our resolutions for more than a week or two. Most people get caught up in the New Year's spirit, then lose their momentum after they return to the daily grind post-holidays.I'm sorry to say that I can't get you in the gym. That's just not my area. What I can do is show you how to get the financial resolutions you make next week to stick throughout 2008 and beyond. I won't tell you it's going to be easy, but it's also not nearly as hard as you think.Why? Because it really all goes back to one thing, and that's spending less than you make. If you do that, the other goals — decreasing debt and increasing savings — will slowly fall into place. Here's how to get started:Learn from your mistakesBefore you move forward, you have to look back, especially if you spent the bulk of 2007 feeling strapped for cash. If you didn't have the foresight to track your spending at some point during the last year, you can still get a general idea of where your money went by looking at your bank and credit card statements. "One of the important things when looking back is to be able to classify which expenses are fixed and which are variable," explains Sabrina Lowell, a financial planner with Mosaic Financial Partners in San Francisco. Fixed expenses are nonnegotiable; things like your mortgage, insurance and utilities. Variable expenses are just that, and that's the area where most people, if they work on it, are able to find some wiggle room. If you're seeing a lot of, say, restaurants on your credit card statement, go ahead and add up the charges. You may think that the odd $40 meal out doesn't add up to much, but you'll be surprised when you actually calculate the cost over a few months' time.Make choicesThis may come as a shock, but I'm not going to tell you to stop eating out. I enjoy going to restaurants, and much like a diet, if you completely deprive yourself of the things you love, a splurge will undeniably come along and ruin your hard work. The idea is to allow yourself some discretionary money — after the bills are paid and you've made contributions to savings — to spend however you choose. So you can go to dinner or a movie, buy a new shirt or go to happy hour. Once you've identified your priorities, set a few boundaries to keep yourself in line, advises Lowell. "Make a policy of how much can be spent, and how frequently that expense can be incurred. Then the decision to open your wallet becomes really easy: Does it fit into your policy or not?" Be honest.Put extra money to workIt's bonus time in a lot of offices, and the sudden influx of money can really send your good habits for a loop. But when your income increases, whether from a bonus, raise or a tax return, the best thing you can do is pretend it didn't. "When you get a bonus, put it into savings. When you get a raise, bump up your 401(k) contribution. If you pay yourself first, you're going to reach your savings goals," says Mark Stinson, a financial planner at Baltimore-Washington Financial Advisors. Remember that this is money you won't miss, because you're already accustomed to your old salary and lifestyle. And if you have debt, it's a good idea to use any additional income to pay it down.Boost your earningsIt's relatively easy to spend less than you make if you earn a decent living. But if the review of your credit and bank statements turned up little to no discretionary spending and you still can't get ahead, there's a good chance you just don't make enough money. Your income needs to at least cover your fixed expenses, plus any curveballs that may come your way. If it doesn't, you need to look into either finding another job, upping your hours, or moonlighting on the side. Really take the time to assess your skills and figure out if you're being paid what you're worth. If you're not, put yourself back on the market. Hold yourself accountable
There are any number of programs now that allow you to track your spending, so you won't have to sort through credit card statements and crumpled receipts next year. The most popular, of course, is Quicken, which is pretty simple to use and will automatically show you where your money is going. At about $30 for the starter program, it's relatively inexpensive, too. But there are also free programs popping up all over the Web that work in the same way. The two most popular, Wesabe (wesabe.com) and Geezeo (geezeo.com), will show you your bank account and credit card balances, as well as how much you're spending on everything from food to entertainment to personal grooming.

And then there's the old standby, an Excel spreadsheet, which is the least high-tech but also fairly easy to manage. Bottom line? Find a system that works for you, because in the age of debit cards and ATM machines, it's way too easy to lose sight of how you're spending your hard-earned dollar.

With reporting by Arielle McGowen.

 

Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for “Life” magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, .