01/31/2009 05:12 am ET | Updated May 25, 2011

New Year's Resolution

We did something rather curious at my sister's house before Christmas dinner. We each took a small square of paper, wrote a wish on it, rolled the paper into a cylinder, then set it on fire. The burning ember flew aloft taking each unspoken wish with it.

I must admit I was more concerned about someone setting the tablecloth ablaze and the fire department showing up, but that didn't happen. Now I wonder where all those wishes went. Perhaps, the same place all those New Year's resolutions wind up, in a limbo of good intentions.

Do you even remember what you resolved to do in 2008? Even if you don't, there's nothing to be gained by beating yourself over the head with the old year. 2009 is still a blank page, but one you can turn into a blank check by redrawing your financial profile.

I know that sounds like something a financial planner or someone who wants to sell you an investment "opportunity" might say. Don't even think along those lines yet. Just take a few measured steps to reconsider how and where you spend your money. To do this, create three big categories for review: your budget and how you can trim it, your debt and how you can eliminate it, and your savings and how you can grow it.
Resolution number one: Turn your budget into a clear reflection of how much money you have each month and where you spend it. Add up all of your monthly bills in one column. Then scrutinize each bill for places to cut. Do you really need all-out premium cable, or call waiting, or a low deductible on your car insurance policy? Slice and dice where you really won't notice day-to-day. Next, add up all of your cash withdrawals in another column. You may be clueless where you spent most of the money. This is a clear sign you indulged in "random" or "impulse" spending. Take control, rein it in and do the walk away for a few minutes before you make a "quick" purchase.

Resolution number two: Look at your long and short-term debt. Long-term debt, such as a mortgage, should be no more than 2-1/2 to 3 times your annual income. So, if you earn $100,000 a year, don't even look at a house that's more than $250 to $300,000. Your car payment and insurance policies, a second mortgage or home improvement loan are all long-term debt and it's more difficult to make adjustments to them. This can become a work in progress to redesign your long-term debt over time. Your short-term debt such as your credit cards, club memberships, hobbies, can be tackled more easily. Pay down your credit cards, drop any memberships you don't use, and find a cheaper way to enjoy your hobbies.

Resolution number three: Use the money you salvaged in the two previous resolutions and increase your savings. Most Americans don't save enough and that's a fact. You need three types of savings plans: one for retirement, one for something you want to buy in the future such as a house, car, college education, and one for the "Big Emergency" losing your job. In the current economy, this last could be the most critical investment you make. Without this cushion, all the building blocks in your financial house could take a tumble.

So, how much do you save? The popular rule of thumb is 10% of your gross earnings and six months worth of income in your emergency fund. Impossible you say? Yes, it is daunting, but start contributing and pay yourself first. At any rate, that's what these resolutions are for, to reorganize and reprioritize. Worry about where you're going to put your newfound cash later. In these challenging economic times--and that's putting it mildly -- just finding extra money is already a resolution worth keeping. (For more money management tips visit