0 Don't Forget To Set Some New Year's Money Resolutions

By AMP Financial Planner Ali Mohammed

The New Year is a time when people tend to reflect on the past 12 months and the changes they'd like to make in their lives.

Many resolve to quit smoking, lose weight or do more exercise. And if you're keen to get on top of your finances, some New Year's money resolutions are the way to go.

Here are 10 things people can do, regardless of their income levels, to improve their financial well being in 2013.

Top 10 New Year money resolutions:

1. Start with a budget It's essential to have a household budget and stick to it. If you spend more than you earn, it can quickly land you on the roller coaster of debt. Make a promise to start living within your means.

2. Differentiate between 'wants' and 'needs'
Don’t be too hard on yourself, but do you really need the $100 per month pay TV package? You probably don’t watch half the programs.

Cars are big traps too. It’s nice to drive the latest and greatest, but don’t live for your car. Be sensible.

3. Shop smart
Look for ways to reduce your spending such as using discount petrol dockets, taking your own lunch to work, cutting back on take-away dinners and car pooling.

Reduce your weekly grocery bill by shopping for your fruit and veggies at farmers' markets, buying generic groceries and planning meals to avoid waste.

Always shop around for the best deal when purchasing big ticket items.

4. Use credit cards wisely

Credit card debt is fine if you pay it off each month before interest is incurred. But if you have a large amount of debt sitting on your card, it could be costing you an astronomical amount in interest each year.

Interest rates on credit cards are sometimes as high as 20 per cent or more, so it's important to pay off this kind of debt as fast as possible. To do that you will need to make more than the minimum repayments each month.

If you have several cards maxed-out, consider rolling all the debt in to one low interest-bearing card to save on interest. Once you have finally paid the card off, cut it up and switch to a debit card if you have to.

5. Have an emergency fundAs a contingency for life's unexpected expenses, it's vital to have an emergency fund or access to cash through a mortgage redraw facility or offset account.

A good rule of thumb is to have at least three months salary in the kitty. This will avoid the need to rely on credit cards in the event of an emergency.

6. Get savvy with your superAustralians are losing around $1 billion a year in fees, lost payments and earnings by holding several super accounts they aren't contributing to (Rice Warner Actuaries 2008). AMP has introduced a simple service allowing customers to consolidate their super online for free at amp.com.au/consolidate, or by calling 133 888.

Also consider topping up your superannuation by salary sacrificing another two to five per cent of your income, depending on how much you can afford. Lower income earners should also make the most of the government co-contribution scheme.

7. Review your mortgage The most effective way to save interest on your home loan is to make extra repayments each month. The monthly repayments on a $300,000 mortgage over a 25 year term at 7.25 per cent are around $2,168.

But a person could pay the loan off 10 years earlier and save $158,277 in interest if they increased their monthly repayments by $575. People can also attack their loan faster by paying fortnightly instead of monthly and making lump sum repayments whenever they can.

It's also now easier for consumers to shop around for a better deal after home loan exit fees were abolished on all mortgages taken out from 1July 2011. However people with loans taken out before this date need to carefully consider the costs associated with moving a mortgage.

8. Have a debt strategy Financial worries can be very stressful, so it is important for people to take control of their debt before it starts controlling them. The general rule of thumb is to pay off 'bad' debt like credit cards first as they usually have the highest interest rates.

Once bad debts are under control, a person can then target other debts such as their car loan and home loan and save even more in interest.

As the interest rates on home loans are much lower than other loans, this type of debt should only be targeted more aggressively after your credit card and other high interest loans are under control.

9. Protect your family

It's not something we want to think about, but you need to ask yourself how your family would cope financially if you or your partner were injured in an accident, became too sick to work, or even worse, passed away.

These days, insurance doesn't have to be a big drain on the budget. If cash flow is tight, you can get affordable life insurance and income protection through your superannuation. After a change in regulations a few years ago, it is now possible to obtain income protection insurance from some funds to age 65 inside your super.

10. Save for the future

While most people are pretty good at saving for short-term goals such as end of year holidays, they often forget to put money aside for the future.

Make sure you have a savings plan for medium-term goals such as a deposit on your first home and longer-term milestones, like retirement funding and the kid’s education.

*Ali Mohammed is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.