Five Financial Resolutions for Young Adults

Year after year I make a resolution to get in shape. I've bought books, tapes, and videos in hopes of devising an exercise plan that will have me looking like Jennifer Garner in a matter of weeks. I even moved into an apartment complex with a workout room so I couldn't blame my failure to get to the gym on traffic or weather.

But come January 31, my tennis shoes are always buried in the back of my closet, my jogging pants still have their tags on and I'm back on the couch in front of the tube.

Most of you probably have similar results with your New Year's delusions, er, resolutions. You have the best of intentions, but seem to fall short. But here are five goals that make it easy to stay motivated (and you won't have to miss your favorite TV show). With our tips and tools, you just might meet your goals this year.

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1. Start saving for a house

If you long for a home to call your own, make this the year you stop dreaming and start acting. The beauty of this resolution is that it's easy to stay focused -- you're constantly reminded of your goal every time you write your rent check.

First, use our calculator to figure out if buying a home makes financial sense for your situation. If you think you may need to relocate to further your career or you aren't sure where you want to settle down, renting may still be your best option. (See Should You Buy or Rent?)

If a home makes sense for you, set a savings goal. Shooting for a down payment of 20% is a good idea because you start off with some equity and you'll avoid paying private mortgage insurance. (Learn more about Why You Need a Down Payment.) You'd have to shell out $60,000 if you want to put 20% down on a $300,000 house, and there are also closing costs to consider. You can, though, get into a house sooner for a much more doable amount, and may even be able to finance the down payment with a "piggyback" loan to skip the PMI. See The Lowdown on No-Down Home Loans to find out how.

Now comes the hard part: Actually saving the money. First off, resolve to pay yourself first. If you set aside a fixed amount from your paycheck as soon as you get it, you'll stand a greater chance of reaching your goal. Put the money into a special account reserved exclusively for your house. That way, you can easily keep track of your progress and you won't be tempted to dip into it. If you think you’ll buy a house within the next three years, put the money someplace safe but accessible such as an FDIC-insured high-yield online savings account.

When you think you’re ready to buy, take a look at our preparation checklist. Then check out our Home Buyer's Survival Kit for information on choosing a broker, scouting properties and closing the deal.

2. Put away your credit cards

Resolve this year to spend only the money you have. Credit cards are nice for their convenience, but unless you're disciplined enough to pay off your balance each month, they're not worth the cost.

Let's say, for example, that you carry a balance of $700 on a card charging 18% interest. If you pay $25 each month toward your bill, it'll take you three years to pay it off and cost you an extra $286 in interest. (See what it'll take to pay off your credit cards.) The thought of paying that much extra for something over the next few years should be enough to motivate you to evaluate your credit habits.

The best way to avoid the eternal credit card bill is to not get deeply in debt in the first place. Clark Howard, consumer advocate and radio talk show host, says credit cards should be used for safety and emergencies only. When you head to the mall, leave them at home. In fact, Howard suggests putting your cards on ice -- literally. "Put them in a bag with water and throw it in the freezer. By the time it melts and you can get to the card, the urge to use the card will have passed," he says.

Or opt for cash or a debit card which takes money directly out of your checking account. But if you must use your credit card, deduct the amount on your checkbook register. That way, you'll ensure you have enough money in your bank account to pay the bill when it comes due.

3. Ask for a raise

Ready to supersize your paycheck in 2005? No matter how much you think you deserve a raise, you'll probably have to prove it to your supervisor.

Sit down and make a list of your specific accomplishments to illustrate your value to the company and your department. Find out how your salary compares to others in your industry with your level of experience to get a ballpark figure of what you're worth. And remember, a raise doesn't have to come with dollar signs. Consider negotiating your benefits and perks, such as more vacation time, flexible work hours, stock options or tuition reimbursement.

A good time to talk about your pay is during your annual review with your supervisor. But if that's a ways off, look for other opportunities to bring up the subject. You might want meet with your boss after a stellar performance on a project, or after you've agreed to take on extra responsibilities. (You don't want to give your boss a chance to develop amnesia.) With your list of accomplishments in hand, approach the topic professionally -- like two business partners trying to reach a compromise. Oh, and don't threaten to quit unless you really mean it. Learn more in Five Steps to Negotiating a Raise.

4. Start investing

If you're one of those people who think you need to be rich to invest, turn that thought upside down: You need to invest to be rich.

For example, if a 25-year-old invested $200 a month, and earned an average 10% return on her investment, she'd have $1.3 million by the time she turned 65. The earlier you start investing the more time your money has to grow. And you can always start out small at first and gradually increase your deposits as your salary grows. (See how regular deposits can boost your investments.)

The best place to start investing is in your employer's 401(k) if it offers a match on your contributions. To learn more, see Save Now, Retire Rich. If your employer doesn’t offer a match, open a Roth IRA first and stock it with mutual funds. See A Beginning Investor's Best Friend to learn more about how to get started and for three stellar funds that will let you in for as little as $50.

5. Cover your assets

Here's a resolution that won't take lots of planning or months to pull off: Get renter's insurance. Nearly two-thirds of renters don't have any protection for their belongings in case of theft, fire or other disaster. But unless you have enough money saved to replace everything you own -- clothes, furniture, computer, entertainment system, microwave, etc. -- it's definitely worth the cost.

No matter how paltry your salary, you can probably scrape enough together to buy a policy -- expect to pay $150 to $250 a year, or $12 to $21 a month. You may pay more or less depending on your neighborhood and level of coverage. Check with your auto insurer to see if you can get a discount for having more than one policy with the company. Or get quotes from several companies online at InsWeb.com. See Insurance Everyone Needs to learn more.

And speaking of auto insurance, it wouldn't hurt to make sure you're getting the coverage you need for the best price. See Tune up Your Auto Policy for tips.