Starting Out

7 Money Confessions and Resolutions for the New Year

Face your financial faults this year.

By Stacy Rapacon, Reporter, Kiplinger's Personal Finance

January 22, 2010

Forgive me, for I have sinned against my better financial judgments. But who hasn’t? If there’s one thing I’m sure we have in common, gentle reader, it’s that we’re less than perfect. All we can do is admit our faults and hope to learn from them. So, as we shift from holiday spending to budgeting for the year ahead, let us firmly resolve to amend our money mistakes and commit ourselves to improving our financial futures. These are my money confessions:

1) I didn’t budget for special occasions. Over the past couple of years, I enjoyed my friends’ weddings, housewarmings and first babies. And I learned just how expensive it is to celebrate such joyous events: Last April and May alone, I spent more than $1,500 on other people’s weddings… and the actual celebrations weren’t even until June and July, when I spent about the same amount. Without properly planning for the costs of clothes, gifts, travel and other expenses, I wound up spending frivolously, unhappily sliding into debt and dipping into savings so that I wouldn’t miss the happy events.

Resolution: Review a calendar of this coming year to save the dates for your own friends’ and family members’ (hopefully) once-in-a-lifetime moments. Figure out how much you’ll spend on each event, and work the total into your budget for the year. Don’t forget to factor in birthdays, anniversaries, holidays and other annual events, too.

2) I forgot to budget for other irregular bills. With my budget that’s laid out in color-coded spreadsheets, my account at online money-management site Mint.com, my bank’s automatic bill-pay system and my various payment alerts, I’m armed and ready to hit every monthly bill on time. But every year since I bought my Tivo I’ve been caught off-guard by its annual $129 charge.

Resolution: Go back to your money calendar to pencil in sporadic bills -- for example, car-insurance payments that come due every six months. Consider also annual club-membership dues, homeowners-insurance costs, property taxes and other irregular bills.

3) I still paid a bill late. I’ve already told you about correcting my spotty bill-paying past. But my new husband came with a slew of new bills to pay. Before adjusting my budget and payment schedule to include his as well, one of his bill due dates came and went unnoticed.

Resolution: Review your monthly bills and each one’s due date. Particularly note any new or adjusted costs in your budget. Try setting up e-mail or cell-phone reminders, or automatic payments, to help you stay on schedule.

4) I overused the Bank of Mom and Dad. Whenever a big, unexpected cost -- such as emergency dental care -- reared its head, I turned to my parents for a bailout.

Resolution: Maintain a plumper emergency fund. Luckily, my wedding windfall padded my pot, and I continue to add to it any extra cash I come across -- holiday gifts, for example, and savings from cutting my landline -- giving me and my husband about nine months’ worth of living costs saved. The sage old advice of keeping cash on hand for three months’ worth of expenses is now a bare minimum. You should aim to save closer to what you’d need to cover you for six months. And if you’re particularly worried about losing your job, consider cushioning yourself with up to a year’s worth of costs. Find out How Much Cash You Really Need. And try our calculator to estimate your magic number for emergencies.

5) I under-funded my FSA. Being young and healthy, I figured I could afford to leave less in my flexible spending account to fatten my take-home pay. But I sorely regretted it when I needed an expensive dental crown and ended up spending (my parents’) post-tax dollars to pay for it.

Resolution: If your employer offers it, take full advantage of this valuable benefit. With an FSA, you fund the account with pretax dollars pulled directly from your paycheck and use the money for out-of-pocket medical expenses and dependent care. Stashing, say, $5,000 in your FSA would save you nearly $2,000 in taxes (assuming you’re in the 25% tax bracket, and pay 5% in state income taxes and 7.65% in Social Security taxes). Try our How Much Should I Put in My FSA calculator. And if you’re worried about the FSA’s use-it-or-lose-it rule, here’s a slideshow with 7 Ways to Spend Flex-Account Money While You Can.

6) I skipped making Roth IRA contributions. To give myself more spending money today, I chose to forgo saving extra cash for the distant future. I did keep contributing a bit to my 401(k) for retirement. But future me will surely wish for more out of my Roth IRA tax-free. And I certainly regret missing the market’s bottom last March.

Resolution: Duh -- contribute to your Roth IRA. I’ve worked contributions into my new budget for the year by planning to cut back on leisure costs such as going shopping or to bars, restaurants, and movies -- which Mint.com clearly showed that I was spending far too much on. I’ll still be far under the $5,000 contribution limit for 2009 and 2010, but a little is better than nothing. You have until April 15 to shovel contributions into your account for 2009, or you can start making contributions for 2010. For more information, see Why You Need a Roth IRA.

7) I was selfish. Not only did I forget to budget for other people’s special occasions and fail to note the due dates of my new husband’s bills, I let those less fortunate fall by the wayside and skimped on charitable contributions. According to my records, in 2009, I donated about half what I did in 2008.

Resolution: Think of others, and work charity into your budget. Don’t forget to include donations to your religious or local communities. If you don’t already have a favorite cause, here are 7 Ways to Check Out a Charity. And if you really can’t spare the cash, perhaps you can donate some clothes, toys or other merchandise. Whatever you give, it may entitle you to a tax deduction if you remember to keep your receipts. Find out more about Tax Breaks for the Generous. Of course, your time could be more valuable than your money -- consider spending some of it volunteering.

Have other money mistakes weighing down your conscience? Unload in our confessional box below. Or feel free to leave whatever comments you’d like. May you and your finances have a happy and healthy new year!

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