Financial changes top New Year's resolution lists every year. Whether your resolve involves saving more, spending less or digging out of debt, here are five mistakes that will keep you from keeping your financial resolutions, and how you can avoid these common pitfalls. (For related reading, also check out Financial New Year's Resolutions You Can Keep)


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1. Not "Paying Yourself First"
All your good intentions to save more can be too easily derailed without a firm plan in place. Herein lies the benefit of an automatic savings plan. There are two ways to save automatically: through your financial institution or direct deposit through your employer. In both cases, it only takes a few minutes to establish, and is usually free. All you need is a savings account, and to determine how much money you can save each month.

Once you specify the reoccurring amount to be deposited, the funds will be transferred automatically into your savings account, on or around the same day each month. This method makes saving money procrastination-proof, and furthers your new year's financial resolutions to save thanks to an "out of sight, out of mind" mentality. The other key to making this strategy successful? Do not get an ATM card for this account!

2. Underestimating Your Savings Power
To take your savings a step further, finance expert Suze Orman, advises that once you establish how much you want to save each month, tack on an additional 20%. She argues that most people really can afford to save more than they think - it's about making it an automatic behavior, and challenging your current way of thinking.

Once you've done this for several months, finance expert Jean Chatzky advises to boost the savings momentum. "As soon as you find you don't miss $100 a month, up your contribution to $200. Eventually, you'll invest that money so it can grow even faster." (Alternatively also see, Are You Saving Too Much?)

3. Buying on Impulse
Love how easy it is to buy on sites that store your credit card for later purchases so that you don't even have to move from the computer to retrieve your plastic? Retailers love it too, because it increases the likelihood that you will make impulse purchases. Good for their bottom line, bad for yours.

The powerful remedy to this problem is simple: pause. The next time you are debating a purchase, whether in the store or online, sit on it for 24 hours. You'll be surprised how many items that feel mandatory one day, are meaningless the next. If you eliminate just one $50 purchase a month with this financial spin on "counting to 10," you'll save $500 a year.


IN PICTURES: 9 Ways To Trim The Fat From Your Spending

4. Misusing Credit
Research indicates that people will spend up to 18% more on a purchase when using credit cards instead of cash. The thought process is simple: it doesn't feel like "real" money. If a plastic problem will blow your New Year's financial resolutions, you have alternatives to cash or credit.

Free services like PayPal and eBillme now allow you to access the real cash from your bank account, so that you can still shop online like you would with a credit card, without a credit card. This option eliminates overspending like you might with a credit card, because you can only purchase if the funds are readily available in your online bank account.

5. Consolidating Debt
While it sounds tempting, debt consolidation can be a "band aid on a broken leg" approach to personal finance, if the root cause of debt (your behavior) isn't corrected. In "The Truth About Debt Consolidation," personal finance expert Dave Ramsey states that "78% of the time, after someone consolidates his credit card debt, the debt grows back."

Why? Despite the debt consolidation, the spender still doesn't know how to manage money. As a result, bad habits prevail, and new debt eventually mounts.

Ramsey also notes that while the rates on debt consolidation appear to be much lower than the rates a person may currently paying on various credit cards, it's often misleading. "Lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, but if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business." (For more on this topic, see Debt Consolidation Made Easy.)

The Bottom Line
Financial resolutions are a great way to kick off a new year, and when done right, can open many doors to a new way of life for years to come. Arm yourself with knowledge about common mistakes that can prevent your financial resolution and ensure that you won't be another failed "New Year's resolution" statistic.

For the latest financial news, see Water Cooler Finance: Goodbye 2010 (And Good Riddance?)

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