Change Your Financial Ways With the New Year

Jan. 3, 2012— -- New Year's resolutions are easy to say but hard to live up to. Yet following well-reasoned pledges for change can provide benefits for many years to come. Here are a few resolutions to consider:

Do an annual review of your spending. The big items are obvious; it's the small ones that lead to death from a thousand cuts. You can stanch the bleeding of your hard-earned money by giving up some small things that don't really matter to you. If you forgo a couple of lattes from Starbucks or dinner and drinks at a restaurant each week and put the money in a Roth IRA, you'll be surprised at how much it can add up to years down the road.

Cutting out unnecessary recurring expenses — such as monthly charges for satellite radio you don't listen to, Internet or phone data plans that you rarely use, premium cable television channels you don't watch, or gyms you don't work out at (pledging to actually go to the gym is another resolution) — can result in substantial savings. Many people aren't even aware of how much they're paying over time for these services.

Develop a consistent investing process — and the discipline to maintain it. As Warren Buffett has said, investing is like dieting: It's simple to understand but difficult to execute. What motivated you to sell or buy a given stock? Did you invest in Boeing because the company has a new plane coming out? How's that going? What was your thought process? Or was the decision driven by fear or greed, and not by rational analysis? Resolve to be aware of what's driving these decisions so that you don't repeat investing mistakes.

Conduct a portfolio review. Have your stock holdings just sat there without a critical review? Perhaps during this time, other stocks have skyrocketed. It's time to reevaluate things: You may want to rebalance your portfolio to reflect your original asset allocation, reducing risk by not having too much exposure to any one type of asset.

Because of growth in small-company stock holdings, too much of the value of your portfolio may now be in small companies and not enough in large companies. If you haven't rebalanced for years, be aware that the risks inherent in different asset classes may be different from when you originally set up your portfolio.

Take full advantage of tax-deferred retirement accounts. Most people do not contribute the maximum allowable amounts to their 401(k) plans or IRAs, nor do they contribute enough to get the maximum amounts of matching money their employers pay. The match is free money, and all contributions to the plans are tax-free until you remove money from these accounts — preferably when you're retired and in a lower tax bracket. Every dime you save in taxes is another dime you can invest for retirement.

Pay down your credit card debt. At the hurtful interest rates you're probably paying, you could be in debt forever. Regardless of whether you can make a substantial dent in this debt, you may be able to manage it better by using advisable methods for managing other types of debt. Also, credit card debt can sometimes be managed by transferring balances to new cards at zero interest. But, if not used correctly, this method can ultimately result in more debt and poorer credit.