Gerlsbeck: Resolutions? The fewer the better

Over the last week I’ve read dozens of personal finance resolution pieces in newspapers and on blogs. There’s lots of advice. Some of it’s even good. Of course, all of it will be forgotten by… oh, the weekend.

Sure you may have clipped some of these stories and put them up on your fridge as a reminder. This year, will be different, you say. But let’s face the stone cold truth, shall we. If you weren’t paying attention to your money on, say, Sept. 15, 2009, or May 15, 1998, why delude yourself into thinking you can turn it all around come Jan. 1, 2010?

One problem perhaps is a lot of the resolution-type articles take a shotgun approach to money. They tell you to do too many things at once: contribute to your RRSPs, save for your child’s university education, pay off your mortgage faster and your credit cards too. Oh, and, don’t forget to bank away some money into an emergency fund. Intuitively, most people realize they can’t do all these things with whatever’s left of their paycheque after taxes, food, gas, etc. So they do nothing.

A far better strategy is to take baby steps. I suggest you start with these three. They won’t make you rich, but they’re easy to remember and follow:

No. 1. Get out of debt. If you’ve got thousands and thousands of dollars on credit cards, this shouldn’t just be your first goal of the year. It should be your only goal of 2010. That’s because you can’t build wealth and pay off debts at the same time. Do them one at a time. Start by paying off the debt with the highest interest rate first. That’s usually a credit card. Once you’ve licked that one, tackle your other debts. Once you’re done you can move onto my second piece of advice.

No. 2. Set up an automatic savings plan. Start by having your bank divert 10% of your after-tax paycheque into a savings account. If you find that’s too much and you’re starting to use credit cards again, cut it back slightly. But make sure you put away at least 5%. Whenever you get extra money (as in gifts or a bonus at work) put that into the account. It’ll take a while to accumulate, but over a few years you’ll be amazed at how much money you have set aside.

No. 3. Eliminate one costly expense this year. The standard advice I hear this time of year is to simply spend less. Sounds good, but to make it work you should be more specific. Cut out one thing that you tend to waste money on. It could be cutting out cable TV. Or if you smoke, quit and you’ll save plenty of money (not to mention your health). The easiest may be lunch at work. Instead of buying it five days a week, brown-bag it four days and buy lunch only once as a treat.

Like I said earlier, none of these things will make you wealthy. They’re a manageable start to dealing wisely with your money. And if you do all three, you might find that come January 2011, you don’t even need more resolutions.