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A Single Resolution for 2010

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Thinking about organizing your filing cabinet? Spending more quality time with the kids? Increasing your core strength? Improving your finances? Hmmm ... it must be getting close to New Year's Eve.

Resolutions are great ... until the resolve melts away around the 13th of the month (or, for some of us, the 3rd). Then they simply become a list of broken promises cluttering the front of our fridge.

This year, instead of composing a list of New Year's resolutions, try something completely different: In your quest for financial improvement in 2010, simply commit to a single New Year's habit. My suggestion? Become more mindful of your everyday spending. You'll be shocked how much -- and how fast! -- it'll improve your finances.

Stick with me here. Consider this all-too-common scenario: You open your credit card bill or bank statement and wonder exactly what it was that you got for $39 at Acme Mart or where that $100 ATM withdrawal went.

Wonder no more. If you vow to be more mindful of your money, you'll make smarter decisions with every dollar that passes through your hands. Of course, a natural outcome of this new habit is that you'll save money every single day.

How to form a new -- good -- money habit
Why "habit" and not "resolution"? Simple: Resolutions are made to be broken. Habits, on the other hand, ingrain themselves into your daily routine. Once formed, habits require practically no extra effort to follow. Best of all, habits are hard to break.

In other words: Form a good habit and improvements are all but guaranteed.

Here are four ways to stop mindless spending and become more conscious of your everyday finances.

1. Pay with cash when you can. Credit cards are a major cause of overspending. When we whip out the plastic, our mind goes numb; we don't process the transaction the same visceral way we do when we spend cash. (Think of how akin it is to casino companies such as Wynn Resorts (Nasdaq: WYNN  ) and MGM Mirage (NYSE: MGM  ) getting you to use poker chips in Vegas -- only without Wayne Newton tunes cranking through the sound system.)

All that plastic-swiping is good news for issuing banks like Citigroup (NYSE: C  ) and for card networks like Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) . But it's a lot more expensive for you. In fact, some experts say people spend 15% to 30% more when using credit instead of cash. Spending actual cash forces you to think about every dollar you spend, so you experience a physical reaction to forking over $1s and $5s.

Here's more on things that make you spend more than you realize.

2. Set up an instant no-brainer budget. The "envelope" budgeting approach will help you get in tune with your spending in a snap. The idea is that you carry around just the amount of cash you want to devote to various spending categories (lunch, entertainment, cute shoes) for that week. Try it for the first couple of weeks in January and see how it affects your purchasing. Chances are it'll keep you from frittering away your money so much that you'll tell the whole family to play along.

For guidance on the "envelope" budget method, here's a budgeting primer for those of us who are kinda lazy.

3. Keep your big wants/dreams in the forefront of your mind. Think of every financial decision in the context of your larger money goals (be it buying a new coat, paying cash for your next car, or securing your retirement). Before you toss a gossip magazine into your grocery cart while waiting in the checkout line or buy something just because it's on sale, consider whether such purchases get you to that two-week cruise or covering Junior's college costs.

No, I don't advocate sacrificing all short-term pleasures (love those gingerbread lattes, by the way). But combined with the budgeting method above, this is a pretty powerful motivator to keep the mindless spending in check.

Write a list of your big money goals on a small index card and keep it in your wallet. This constant visual reminder of what you really want to do with your money will make you think before you buy anything that doesn't align with your real wishes.

We could all learn a few lessons on money management from one of the richest guys in the world: Warren Buffett.

4. Always shop with a list. It may be cliche, but shopping with a list will keep you honest. Studies show that as much as 60% of supermarket purchases are unplanned. With the average family shelling out $5,000 for groceries each year, that's $3,000 of unnecessary stuff going to pad the bottom lines of companies like Safeway (NYSE: SWY  ) or Kroger (NYSE: KR  ) .

Lists (and that "envelope" budgeting method) are great for big-ticket retail excursions, too, like holiday shopping and "Skip Work to Go to the Outlet Mall Day" (y'all celebrate that one, too, right?).

Here's how to make spending cuts that'll add thousands to your bottom line.

Try out a few of these money practices over the next month. You might be surprised how quickly they become habit -- and how much more attractive your finances look when it's time to ring in 2011.

5. Earn extra credit. So the turning of the calendar has you revved up to really get your finances in tip-top shape? Strike while the resolve is hot with our Foolish primer -- 13 Steps to Investing Foolishly!

Want more help getting ready for 2010? Read why Morgan Housel is optimistic about the coming decade.

Dayana Yochim prefers to think of her habits as "charming quirks." In 2010 she plans to eat more leafy greens while watching less TV. She doesn't own any of the stocks mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 29, 2009, at 7:12 PM, DDHv wrote:

    It has been best to start forming a habit as soon as it has been thoroughly evaluated, rather than wait for New Years. It takes a chunk of work to change a habit anyway.

    For the habit of keeping my expenses down, a major advantage was that shortly after school, my income was way low. It was needed to sleep in the car for a couple of months! So when income increased, the habit was kept. It is too bad no one started me on the habit of using the extra for investing, instead of just saving. :-((

    For the past six years, the new habit has been made. It has even been possible in the last three years, to develop a habit of PROFITABLE investing! ;-))

    This spring was quite nice for us.

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