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3 Mistakes that Derail Your New Year’s Money Resolutions

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According to USA.gov, managing money and getting out of debt are among the most popular resolutions made at the start of the year. Unfortunately, a few days or weeks into the year, many fall off the resolution wagon. Experts say those abandoned and forgotten New Year’s resolutions wind up as a faint memory sometime around Valentines’ Day – or sooner – because consumers commit a few common mistakes when resolving to get out of debt or get a grip on their finances.

Here’s a look at three major mistakes to avoid to ensure your resolutions stick around long after the snow flies this year.

Don’t go ‘all in’

Drastic and extreme resolutions are not sustainable. They reflect the desire to turn over a new leaf, but they don’t produce a long-term effect.

Emily Chase Smith, a bankruptcy attorney and debt educator says the top mistake she sees consumers make is going all in. “People make a resolution that’s the financial equivalent of saying, ‘I’ll never eat chocolate ever again.’ Then one bite-sized candy bar  later the discouragement sets in and they’re off the wagon for the entire year,” she says.

Keeping the resolution alive: Instead of trying to completely overhaul your financial life, Smith suggests making a realistic spending plan. “Include luxuries that are important to you,” she says.

For instance, instead of cutting all eating out of your budget, Smith suggests simply reducing the number of times a week you dine out. “I had a client whose eating out budget was higher than most but eating out was her way to spend time with friends, connect and unwind. It was a good place for her to spend her money because those friendships encouraged and motivated her,” says Smith.

Don’t incur debt to pay off debt

Marc Woolf, a personal finance expert and coach in the Rochester, NY area says many consumers who got caught up in the holiday shopping frenzy will find themselves short on cash to pay for the items they purchased. And to dig out of that temporary cash crunch and pay rent, utilities of this month’s car payment, they’ll turn to credit card advances.

“Cash advances are a source of quick cash, but they come with a price and more debt,” he says.

Keeping the resolution alive: To avoid the temptation of taking a cash advance – and having to pay off the associated fees and high interest rate – put the credit cards away in a safe deposit box or another location not readily accessible. “Look at reducing non-essential expenditures so you can apply those funds to holiday debt,” says Woolf.

Not planning for an emergency fund

There are many types of situations that require tapping into cash, says Woolf. But without that cash on hand, your only option might be turning to credit cards and increasing debt instead of sticking to the resolution of whittling down those high interest balances. “Things like job loss, vehicle repairs or purchase, illness, damage from weather or natural disaster and funeral expenses are difficult to manage if you don’t have an emergency fund,” says Woolf.

Keeping the resolution alive: Take advantage of automatic payroll deposits made to a savings or money market account. “You’ll be surprised at how quickly the money will add up if you set a goal that the account cannot be used for anything but a dire emergency,” says Woolf.

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