New finances in a new year

January is filled with great intentions as people pledge resolutions for change — many of which will not last beyond the month. When it comes to making changes in how you manage your finances, the new year is a great time to make a shift, and making that shift will reduce stress in your life.

Here are a few simple things to live by in terms of your personal finances:

• Spend only what you have — use cash or a debit card, not a credit card

• Pay your bills — pay them on time

• Pay yourself — both in savings and for retirement

• Create a budget — knowing is understanding

Spend only what you have. Using cash or debit cards to pay for items uses only the funds you have available to you. Knowing what you have left to spend helps you manage the expenses you have before your next paycheck; using credit cards for everyday expenses makes it very difficult to know how much you have left. This approach is fine if you have the money available to pay the card off in full. But for most, the small incidental expenses add up quickly, and what you bought and consumed a few days ago is long forgotten until the bill arrives. People tend to be more careful with their spending when using the cash in their pocket than with plastic cards, so pull out an amount of cash each week and stick to that amount. Save the credit card for a real emergency.

Pay your bills. Your credit report is your report card on how well you pay your bills. It tells any inquirer how you handle paying bills and speaks to how you will likely handle bills going forward. Set up a calendar or set reminders on when to pay your bills. Have a special space to put your bills when the mail arrives instead of keeping them mixed in with all your other mail. Sit down and deal with your bills regularly; try every two weeks. Try to never ignore a bill; pretending it is not there will only make it a bigger problem. Having good credit by simply paying your bills on time will ultimately make your life much easier.

Pay yourself. Taking care of yourself by saving money should be a priority. Building a nest egg is not as hard as most people think. Set money aside with each paycheck to put into a savings account, even if it is a small amount, but do it automatically. Set up a transfer that happens on every payday. If you are paid weekly and you put $10 aside with every paycheck, at the end of the year you will have $520. It adds up fast. Saving money for retirement is probably the biggest gift you could ever give yourself. If your work offers retirement savings, take full advantage of it. Put as much as you can in these accounts and try to never touch them, just let them grow. If your work has some sort of a match program that matches the dollars you put in, take advantage of the match amounts, otherwise you are leaving money on the floor.

Create a budget. Budgets are not hard; people stress over budgets, but they don’t need to be that complicated. The challenge most people struggle with is that their income comes in at different times than their bills are due. This difference in cash flow is the cause of the stress, so budgeting deals with the differences to eliminate the stress. Let’s look at a simple example. Your cable bill is due monthly and you are paid every two weeks. Without a budget, in the week the cable bill is due, you may have very little money left, and the week it’s not due, you’ll have more. So, if your cable bill is $100 per month and you are paid twice a month, take $50 out of every paycheck and set it in a separate account. When the cable bill comes due, you’ll have the money to pay the bill sitting in your separate account. Take your car insurance as another example. If your car insurance is due every six months and you are paid twice a month, then take your expected bill amount, divide it by the 12 paychecks over that six-month period, and set that amount aside in a separate account with each paycheck. When the car insurance bill comes due, you’ll have the money to pay the bill sitting in your separate account.

Making these four simple changes to your routine should make it easy to stick with your resolution to take control of your finances, and will make this year (and the next ones) less stressful where money is concerned.

Andrew Silsby is president and CEO of Kennebec Savings Bank.