Over the next few days, we’re going to take a look at five common New Year’s resolutions that people often adopt for their finances, evaluate some of the traps that people fall into with regards to that resolution, and come up with some real actions that can turn a challenging New Year’s resolution into a success.

“I resolve to spend less money in 2009.” The money diet, in other words. Many, many people make a resolution similar to this for the coming year – and they usually see some nice success with it over the first month or so.

Then it all falls apart and by the break of spring, the resolution is left in the trash can and the bills are piling up again.

What makes this resolution so hard to keep? It’s the same reason why resolutions related to losing weight tend not to work – they require a significant personal change, and significant personal changes are never easy. Humans are creatures of habit, and most people are quite comfortable with the routines in their life even if they dream of different things. Radically changing those habits will almost always be met with resistance, like a stretching rubber band, and eventually we weaken and our old habits snap right back into place.

So how can a person actually make a “spend less” resolution work? Here are some tactics that are well worth trying.

Find inspiration. What are you really doing this for? It’s easy to give the trite answer and say that you need to start getting rid of credit card debt or that you need to start saving money. While those may be compelling reasons, they’re not inspirational. They don’t truly drive you to make changes.

Instead, think of things this way. What would happen to your life if you didn’t make these changes? Would you eventually lose the things you really value in your life? Would you become a burden on others? Explore those questions carefully.

Likely, you’ll start coming back to some common themes in the answers to those questions. It might be that you’d lose something you dream of – you’d never be able to have that dream house, for example. It might also be that you’re not able to adequately care for something or someone in your life – your children, for example.

That’s your inspiration. Once you figure out why you’re really doing this, use that inspiration as leverage. Put reminders of that inspiration all around. Put a picture of that inspiration in your wallet – wrap your credit card in that picture. Whenever you’re tempted to spend, think about that thing that inspires you and ask yourself if that purchase is really important after all.

Focus on just one aspect of your spending at a time. Much like a diet, many people tend to dive into cutting spending with a short-term religious-like fervor, cutting every dime of frivolous spending.

Much like a diet, this works wonders in the short run. Your spending drops significantly and you feel really good about it. Eventually, though, you begin to feel the resistance – and eventually, you lose your grip and fall back into most of those old routines. Right back where you started.

Instead of attacking fifteen different bad habits at once, though, just focus on one bad spending habit. Do you buy a coffee every morning? Focus on nothing but cutting down (or cutting out) that cost. Do you often stop at your favorite store and spend more than you should? Focus on cutting down on those trips. And let everything else go. Don’t try to make radical changes in other aspects of your life. Just cut down on this one thing.

Watch out for “replacement spending.” When you cut down in one area, it’s often easy for that saved money to pop up in your spending somewhere else. If you stop buying that daily coffee, for example, you might feel okay buying a new book each week, and then you’re right back where you started.

One very effective way to get around this is to adopt two rules: the ten second rule and the thirty day rule.

The ten second rule simply says that any time you pick up an item in a store with the intent to buy it, spend ten seconds asking yourself whether you really need this item. Do you even really want it? Couldn’t you find it cheaper elsewhere? Isn’t there another version that costs less? Why are you really thinking about buying it? Most of the time, you’ll find yourself putting that item back on the shelf.

The thirty day rule simply says that every time you consider a purchase over a certain dollar amount (say, $15), you simply write down the item you were considering and wait thirty days to see if you still want it. If you do, then buy it. Most likely, you’ll either realize you don’t actually want it all that much or you’ll completely forget about it. Either way, it cuts your spending.

Add a new aspect every month or so. So how do you progress from here? Once you’ve created a new spending pattern in your life – say, eliminating the daily coffee run – and haven’t replaced it with anything new, you can select another specific pattern and tackle it. Maybe you eat out too much. Maybe you spend too much on birthday gifts for others instead of thinking of thoughtful but cheaper gifts. Maybe you like to buy clothes a bit too often.

Every month or so, pick a new bad habit and tackle it alone. Use the techniques above – inspiration, the ten second rule, the thirty day rule – to tackle the difficult habit. Eventually, you’ll begin to replace the bad habit with a better one, and then you can move on to yet another habit.

The change will be slow. This method won’t create earth-shattering changes overnight. However, it has a much higher likelihood of slowly bringing dramatic change to your life so that next New Year’s, you aren’t making another tired “I’ll spend less” resolution. Instead, you’ll be celebrating a whole new you.

Over the next few days, we’re going to take a look at five common New Year’s resolutions that people often adopt for their finances, evaluate some of the traps that people fall into with regards to that resolution, and come up with some real actions that can turn a challenging New Year’s resolution into a success.

Retirement planning is one of those painful things that we all know we should be doing, but for those of us who started our careers with a routine of not saving for retirement, it can be a painful subject to consider. Yet another drain on my current paycheck? It doesn’t sound like something that many of us would look forward to.

Because of this tug-of-war between a recognition that we need to save for retirement as opposed to a desire to maintain as much take-home pay as possible, people often resolve to make the coming year one where they finally take charge of their retirement planning, but often it’s a resolution that falls short. They find little things standing in their way and use that as a reason to not take control of the situation.

No more. If 2009 is going to be the year when you take control of your retirement, you need a plan. Here are some simple steps you can take to get a retirement plan in place for yourself, no matter what your situation is.

First, find out if your place of employment offers a retirement plan. Likely, you already know this – if you don’t, contact your supervisor and find out who you can contact to find out more. Many workplaces offer some form of a 401(k) or 403(b) retirement plan which is very easy to participate in.

If you do find that your place of employment offers such a plan, get signed up as soon as possible, even if you’re unsure how much you will be contributing to the plan. You’re better off getting the plan in place now, since you can change your contributions later on. Actually signing up for the plan should also be straightforward – if you need help, ask for help from the person who gave you the forms.

How much should you contribute? This is the stumbling block that catches many people and keeps them from actually pulling the trigger. They consider contributing 5% to a 401(k) plan, but when they envision their paycheck dropping by that much, they don’t even want to think about having to deal with that kind of pay cut.

First of all, your paycheck won’t actually drop that much. For example, if you contribute 5% of your paycheck to a 401(k) or a 403(b) plan, your take-home pay will only go down 3 to 4%. Why? The 5% is taken out before taxes. Let’s say you earn $10 an hour, earning $400 a week, and 25% of that is eaten up by taxes of various kinds. That leaves you with a $300 paycheck at the end of the week, right? Well, let’s say you elect to contribute 5% of your pay to a 401(k) plan. You earn $400, then 5% of that is taken for the plan, leaving you with $380 in pay and $20 contributed to the plan. Then, 25% of that is taken in taxes, leaving you with a take-home of $285. You were able to contribute $20 to your retirement, but your take-home only went down $15. (In fact, it might even be better than that, because likely you’re going to have slightly less of your check taken out in taxes, but that’s a much more complicated story.)

Second, the reduction in your paycheck will be easier to handle than you think. Whenever a person’s earnings fluctuate a bit, their spending almost always automatically fluctuates to keep pace with it, and it’s often not noticed at all. In the example above, the $15 difference in paychecks would likely quickly evaporate in the form of different food purchases, for example.

So, how much should you contribute? For most people, 10% is a good number to target when you’re first starting out. Some employers actually match your contributions, so you can include their matching in that 10% – if you contribute 5% and they match 5%, there’s your 10%. If you’re over 30 and you haven’t started yet, you should look at a bit higher number – 12% or 15% might be better for you.

Even if the percentage seems painfully high, give it a try and see how it works. You might find that it’s easier to deal with than you think – and if it’s not, you can always request to lower your contribution percentage.

What if I don’t have a 401(k) or 403(b) option? Your best option is to start a Roth IRA, which is an independent retirement plan you can easily set up yourself. I recommend using Vanguard to manage it – that’s the group I use. You’ll have to make contributions to this plan directly from your checking account – I have a small amount withdrawn each week for my Roth IRA. They do all of this automatically for you – you only have to set it up once, then you can forget about it.

How should you invest the money? For most people, the easiest solution is to simply put all of one’s contributions into a “target retirement” fund. Most retirement plans offer several of these target retirement plans, which are intended to automatically manage your money over time, helping you get big growth early on, but slow down and become more stable as you near retirement. Pick the one with the year that’s closest to when you turn 65 – for example, if you’re 25 in 2008, you’ll be 65 in 2048, so you should choose a Target Retirement 2045 or 2050 plan. If you don’t have a “target retirement” plan, go conservative. Put 50% of your contributions into one of the stock options (preferably whichever one is the broadest one) and 50% into one of the bond options (again, whichever one is the broadest). This is a pretty conservative choice, but it will keep your money fairly safe no matter what the future holds.

The bottom line is to just take that first step. Even if you’re not contributing much at first, at least you’re setting up the plan and making a start at things.

This is the twelfth in a weekly series of articles providing a chapter-by-chapter in-depth “book club” reading of Benjamin Graham’s investing classic The Intelligent Investor. Warren Buffett describes this book: “I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.” I’m reading from the 2003 HarperBusiness Essentials paperback edition. This entry covers the eleventh chapter, which is on pages 280 to 301, and the Jason Zweig commentary, on pages 302 to 309.

And now (finally) we get down to the meat of the matter.

Most people who have heard about The Intelligent Investor immediately associate it with a method for specifically identifying value stocks. Graham’s method is known for identifying stocks where the value of the company’s stocks is significantly lower than what it should be.

Yet, here we are at page 280 and there’s been essentially no mention of how exactly to go about this. Instead, Graham spends most of the first half of the book focusing on general advice for individual investors: play it conservative, be careful with your advisors, and so on.

For some readers, this is undoubtedly frustrating. They don’t want to hear about anything other than Graham’s methods for pricing stocks. Knowing that the material on stock pricing begins on page 280, some readers will immediately skip all that comes before it and jump straight into the later chapters.

To them I say, hold on.

Graham opens the book with a lot of chapters about the actual mechanics of how to be an intelligent individual investor. Merely knowing how to price stocks is only one piece of the pie. If you’re focused on nothing else but trying to find the “real” value of a given company, you’re likely overlooking many more important things. Is your overall investment plan sensible? Are you actually utilizing a balanced portfolio?

It doesn’t matter how good you are with pricing individual stocks, eventually you’re going to pick a dud and eventually you’ll be caught in a hard place if you don’t have an adequately balanced investment portfolio.

So, if you’re reading The Intelligent Investor for the first time, don’t just skip ahead to the chapters on individual stock investing. Instead, take in Graham’s complete message – I actually think the earlier chapters are more important than this stuff.

Chapter 11 – Security Analysis for the Lay Investor: General Approach
How exactly can an individual estimate what a reasonable value of a given stock should be? Graham identifies five key factors that basically define the value of a stock.

The company’s “general long-term prospects” Ignore what the talking heads are saying and look at the books. Is the company growing steadily? Is this growth actually in line with the stock price, or is the stock price jumping up and down seemingly out of touch with the actual business of the company? If the books are steady, the company is steady, and the prices jumping up and down is the result of talking heads. Be sure to look at a lot of data, though – at least five years, and ten is better.

The quality of the management It’s hard to judge this. One way to effectively judge it is to watch the annual reports of the company over a long period and see if the management actually does what they say they’re going to do as well as frankly discuss the moves they’ve made. If the management commentary seems not well related to the business of the company, that’s a big red flag.

Its financial strength and capital structure The less debt, the better, but a little bit of debt isn’t a big scary red flag. Again, look at the long term and see how the company has handled debt over the long term – it should always be low (or steadily going down).

Its dividend record Graham believes that a company should be paying a pretty steady investment for at least twenty years. If the company you’re investing in doesn’t have this kind of history, that’s something of a negative.

Its current dividend rate Since Graham wrote this book, companies have gradually shrunk their dividend payments, making the current dividend rate much less of a factor. When Graham was writing, companies typically paid around 60% of earnings out as dividends – today, 25-30% is fairly typical.

One important thing to note about Graham’s five factors is that he’s looking at these stocks as a long term investment that he hopes will return a healthy pile of dividends over that time. He’s not necessarily looking for a big ramp-up in stock price over that period – his “value” comes primarily from the dividends. That’s quite a bit different than how CNBC often talks about about stocks.

Commentary on Chapter 11
Zweig spends the commentary basically taking Graham’s five key factors and putting them in a modern context. For example, for evaluating a company’s long term prospects, Zweig encourages people to visit EDGAR (at sec.gov) and download at least five years’ worth of annual reports. That’s not exactly something that could be done in Graham’s day.

In fact, most of Zweig’s recommendations point people towards using EDGAR, which is an incredible tool for getting straightforward factual information about the status of companies you’re investing in. Zweig points out lots of things you should look for in all that data, but here’s three that stood out to me:

Form 4, which shows what a firm’s senior management has been doing in terms of buying and selling stock. If they’re buying, they believe in what they’re doing. If they’re all selling quite a bit, something’s amiss.

Statement of cash flows, which shows where the money is coming from. If you see a lot of “cash from financing activities,” that means they’re borrowing Peter to pay Paul – not a healthy long term solution.

Revenue and earnings each year for as many years as you can, which can show whether the earnings growth is smooth (good) or very bumpy (bad). No company is perfectly smooth, but if you see a 120% jump in growth followed by a 4% growth followed by a 19% growth followed by 2% shrinkage, consider that a red flag.

Next Friday, we’ll take a look at Chapter 12: Things to Consider About Per-Share Earnings.

As you read this, my children are likely passed out on the floor from tearing open presents, emptying stockings on the floor, running around in a Christmas-induced sugar rush, and a big dinner with friends and family.

As for me, hopefully I’m taking a big Christmas nap in a comfortable spot somewhere.

Hope you have a very merry Christmas! Please share your favorite Christmas gift (either given or received) in the comments.

See you tomorrow!

Each Christmas season follows the same general routine.

Throughout the year, I keep my eye open for good Christmas gift ideas for my family and friends. I’ll glance through flyers, look at sales, and stop in at exceptional events like “going out of business” sales with the idea in mind that I’ll find an amazing gift for someone at a stellar price – and I usually do find one or two.

As the end of the year approaches, this ramps up. My wife and I make long lists of all of our Christmas obligations and we dig deep into the process of buying presents for everyone. We spend hours upon hours thinking about the perfect gift for everyone in our family. We usually make a bunch of homemade gifts – homemade beer, homemade cookies, and so on. During this period, we usually do find a few great gifts for people, and we happily wrap these up and stow them away under our tree.

As the final week or so approaches, we’re usually getting very nervous about the remaining holes on our list – and we start to panic a bit. We wind up searching madly for gifts for those last few people, rushing around with a ton of pre-holiday nervousness.

A few days before Christmas, we look under the tree – usually as we’re packing up for a long winter trek to visit family – and we’re aghast at the sheer quantity of gifts. “Did we really buy all this stuff?” we’ll ask each other. And, sure enough, we did.

For those last few days, we usually feel some guilt. We think about all of the money we’ve spent on gifts, even if we did find some spectacular bargains along the way. Usually, when we actually do make a tally, it’s not as bad as it seems, adding some relief to our misery.

As Christmas approaches, though, our feelings about the gifts begin to change. We settle in with our family, warm and comfortable and together. We watch old home movies together and play games together. We relax and nap and tell each other stories about the year that’s past.

And on Christmas morning, we all get up together and open those gifts that we’ve been stowing away each year. All of the people we love, together, in one room, opening the gifts we’ve thought so carefully about and purchased for each other.

I get to watch my niece try to look serious as she opens her gifts, but her simple joy at receiving something she’s wanted for a long time still comes through on her stern face.

I get to watch my sister-in-law sit there with the dazed smile she gets every year on Christmas morning.

I get to watch my mother’s eyes glow with happiness as she watches her grandchildren dive into a pile of presents.

And I realize that it really doesn’t matter what gifts are actually wrapped up under the tree. I’ve already received the perfect Christmas gift – those moments with my family, creating memories of togetherness and happiness that will stick in my mind for the rest of my life.

Christmas Eve. It’s a wonderful time of the year, isn’t it? My oldest child is three, and he’s just old enough to start really getting into the season, shouting loudly at every sight of Santa Claus, happily collecting candy canes, and singing “JINGLE BELLS! JINGLE BELLS!” over and over again.

As for me, the best part of Christmas is simply seeing all of those people that you don’t get to see very often. I love getting in touch with family, talking to them and finding out what they’re up to, giving a few gifts and opening a few others, sharing some delicious meals and a few glasses of wine, and relaxing in the aftermath of all of the crazy buildup.

Here are some great articles from personal finance blogs on the holiday season.

The Best Frugal Christmas Gift Ever This pretty much sums up my feelings on the season. (@ broke grad student)

10 Tips for a Financially Stress-Free Christmas Not only do these tactics reduce the financial stress of the holiday season, I actually think they make the quality of the season better. (@ think your way to wealth)

The Twelve Days of Christmas – Personal Finance Style This is actually a series of posts, but most of them are quite worth reading. This one might be my favorite. (@ m network)

Give Gifts That Deliver Good Value I’ll certainly say that these are the types of gifts I like to receive – and I usually strive to give gifts like these, too. (@ mighty bargain hunter)

Expertise: The Gift College Students Can Afford The gift you’re really giving here is time and love – the best gifts of all, regardless of whether or not you can afford an impressive material bauble. (@ poorer than you)

Is Regifting an Acceptable Practice? I don’t see any problem with it. I give a gift because I hope the recipient will find value from it, but if they don’t, I hope they’ll find someone who will find value from it. (@ cash money life)

Jen writes in:

Since our son was born, we’ve been trying to function as a one income family, but it just isn’t working. We’ve cut out every expense we can think of and are jumping through every hoop we can find to save money, but we’re simply not making ends meet. What’s next? Surely it can’t be impossible to do this.

You’re not alone in feeling this way, Jen. Many people make a plan for functioning with a low income, then as prices increase at a rate faster than the increase in salaries in your household, it becomes progressively harder and harder to keep up. You keep throwing every frugal technique you can find at the problem, but at some point, there’s a line that frugality just can’t carry you over and you’re stuck.

So what do you do when you reach that point? Here are seven tactics that I would try.

Get a part time job that doesn’t require you to take the kids to daycare. That usually means an evening or night job as a gas station attendant or a grocery re-stocker. Those jobs are fairly high turnover (because many of the people doing it are high school students and college students who are just seeking a quick buck in their pocket), so there are usually slots available if you look around. Most employers will be happy to give you a part time schedule that works for you. Consider a 7 PM to 11 PM shift or a 2 AM to 6 AM shift.

Look into self-employment opportunities. Perhaps you could open a very small-scale home daycare, where you take in just a few children during the day. A small number of kids would provide companionship for your own children without taking away too much from the focused time and attention you give to them, plus it would bring in some additional income.

Consider eliminating what you consider a “basic” service. Many people can’t imagine living without a cell phone or without high speed internet access – they consider these services to be essential. However, such services can easily be eliminated in most people’s lives. Look through every monthly bill you have and consider carefully whether you need that service – or whether it’s just something you’ve become so complacent about that you think of it as a need.

Find a family in a similar situation as yours and work cooperatively with them. For example, you could share a warehouse club membership and take advantage of the low prices there by buying bulk items together and splitting them among the families. You could also get into a routine of potlucking dinners together so that you can make your meal dollars stretch a little further. You might also want to consider reciprocal free babysitting with that family to further cut costs. There are lots of ways that you can share (and reduce) costs with another family – just sit down and talk about it.

Ask for help. Talk to your close friends and family about your situation and see if they have any ideas. Everyone’s situation is unique and you may find that the people closest to you have novel ideas about how you can improve your situation. Don’t be ashamed, either – quite often, working couples are actually envious of families where one parent can stay at home and are amazed that you’ve actually taken the courageous step to pull it off.

Plan for future milestones. You may want to consider returning to work full time when a certain milestone is reached – say, your youngest child begins school. If you can clearly envision that milestone, then you can plan accordingly. Seek out personal loans that will help you to get through until that date. Look for temporary arrangements that might be uncomfortable at the time, but can make waiting for such milestones much easier.

Finally, don’t give up hope. You made a series of choices in your life that led you to this point because they were the right choices for you and your family at the time. Consider all of the positive results that have come about because you took the road less traveled, and use that positive assessment to your advantage. Your choices have put you in a better place – you can get through this.

Good luck!

On our first wedding anniversary, I didn’t get my wife a gift. Quite frankly, I considered the idea, but shelved it because it didn’t seem like a major situation. I believed that sometimes it’s nice to get a gift for a “major” anniversary (one ending in a 5 or a 0), but for other anniversaries, I thought just spending some time together was an appropriate way to celebrate.

I was… wrong.

My wife was pretty upset with me. She had thought carefully and put together a really thoughtful gift for me, which she sprung upon me that evening. When I told her that I didn’t have a gift for her, she thought I was kidding, but eventually she realized I wasn’t. And it wasn’t pretty.

Since then, we’ve adopted a policy of getting each other very simple but thoughtful gifts for our anniversary – books, journals, simple trinkets that clearly represent that we’ve been paying attention to each other.

This is the custom that we’ve established within our marriage. Neither one of us feels that an anniversary calls for a huge, ostentatious gift of any kind. Instead, we view it as a day to recall our wedding vows and our pledge to combine our lives together, and we’ve found that simple and thoughtful is the way to go for us.

Having said that, I’ve observed many different patterns in different marriages that I’m familiar with. One marriage, for example, seems to revolve around absurdly huge gifts given by the husband to the wife, and I know from outside conversations that the husband really resents this pattern.

In another marriage, the couple sticks very carefully to the “traditional” list of wedding anniversary gifts – paper, wood, and the like. They try to think of thoughtful gifts for each other that center around the “theme” of the anniversary. I can tell from both of them that this is a tradition that they both value.

Another marriage seems to involve spending a lot of money on something frivolous that they’ll both enjoy. Recent gifts include a week-long trip and a Lexus.

In yet another marriage, their sole remembrance of their anniversary is a kiss for each year they’ve been married.

Why am I reporting all of these things here? There is no established pattern for anniversary gifts, so don’t get caught up in trying to chase something that’s an illusion. From what I can see, anniversary celebrations are as varied as the marriages they represent.

If you think that there’s something “expected” as an anniversary gift and you don’t like it, talk to your partner. It’s likely that you’re harboring an expectation that may or may not be real – and that expectation can be very expensive in the short term – and can establish a very expensive pattern over the long term.

The key to celebrating any personal event is to find a way to celebrate it that’s in line with your personal values. For us, the most valuable thing in our marriage is the fact that we know each other almost as well as we know ourselves, and we focus on celebrating our anniversary in a way that represents that.

Remember, it doesn’t have to be about frivolous spending at all. Instead, it needs to just be a remembrance of a key moment in both of your lives – and it should reflect on both of you in a way that fulfills you both.

How do you celebrate your anniversary? Share your tactics in the comments.