Five Easy Ways to Improve Your 2005 Finances

These moves are so simple -- and valuable -- that they might actually help you keep your resolution this year.

HOW LONG DO YOU USUALLY stick to your New Year's resolutions? Until February -- if you're lucky?

Changing habits is hard work. That's why most resolutions last about as long as a New Year's Eve hangover.

Much of the failure rate can be attributed to outlandish expectations. Are you really going to hit the gym six times a week? Swear off bread forever? Never have another drop of caffeine? Maybe. But the easiest way to ensure success is to set realistic (read easy) goals.

With that in mind, here are five easy (really!) ways to improve your finances significantly in 2005. Trust us: Unlike your goal of reshaping your body to look like Jennifer Aniston's or Brad Pitt's, this won't hurt a bit.

1. Bank Online
Late payments are costly. A payment on your credit card made as little as one day late will set you back $35 or more -- not to mention the outrageous jump you'll likely see in your interest rate.

Folks struggling to pay their bills on time should take their banking online, which allows for fast electronic payments. You can schedule automatic bill payments, or do them manually. Either way, you won't need to factor in a week for your bill to arrive via snail mail. And because the funds are withdrawn quickly -- typically within 24 hours of your online request -- the likelihood of bouncing a check is pretty much eliminated. Many banks now offer their online services free of charge.

Another advantage of online banking is that you're less likely to become a victim of identity theft, says James Van Dyke, founder and principal of Javelin Strategy & Research, a financial services consulting firm in Pleasanton, Calif. People who monitor their accounts online at least once a week are likely to detect fraudulent charges much more quickly than those who don't, Van Dyke says. Also, by opting out of receiving paper statements from banks and creditors, you'll cut the risk of your mail getting stolen, further reducing your risk of identity theft, he says.

Javelin Research found that 45% of banks and 33% of credit card companies allow customers to opt out of receiving paper statements. The option is about twice as likely to be available at a large bank, according to Van Dyke.

Perks: Bank in the comfort of your own home, eliminate late bill payments, track your spending easily, save on stamps -- and never have to deal with a cranky bank clerk again.

2. Put Your Savings on Autopilot
Conventional wisdom holds that people should sock away at least 10% of their gross annual income. If you're like most Americans, you're saving far less than that. An easy way to change that? Sign up for an automatic savings program (AIP), suggests Gary Chard, a senior financial representative for the Principal Financial Group in Rushville, N.Y.

The most common form of AIP is the 401(k). And you'd do yourself a world of good by taking full advantage of your employer's program (more on this later). But many folks don't realize that many employers also allow after-tax payroll deductions to be made to other accounts as well, says Chard. To find out if your employer offers this service, simply contact your payroll department. If it does, you can then request that a certain amount of your paycheck be deposited in an account different from your checking account -- such as a brokerage account. Chard suggests starting with a minimal amount, like $50 a month, so you'll barely feel the loss in your budget. You can then slowly increase your savings amount over time.

Mutual fund families also offer automatic investment plans. In this case, you would likely have a withdrawal made from your checking or savings account and contributed to your mutual fund of choice. This service should be free of charge, and often these programs allow you to gain access to a fund without meeting the traditional minimum initial investment requirement. For a review of the programs offered by the 10 biggest no-load fund families, click here.

You can even put your college savings on autopilot these days. Most 529 savings plans allow automatic contributions, says Joseph Hurley, who runs Savingforcollege.com, a leading 529 plan consumer resource. Many plans will waive their annual account maintenance fees or reduce or eliminate their minimum initial investment requirements for those who enroll, Hurley says. For help in choosing the right plan, click here.

Perks: Rest easy knowing that your financial future is being taken care of.

3. Reduce Your Interest Rates
To get the best interest rates -- for your mortgage, credit cards, car loans, and so on -- you need a good credit score. In fact, having a good score will also enable you to get the best rates for your homeowners- and auto-insurance. So if your score is less than stellar (anything below 725 has room for improvement), it's time to kick it up a notch.

First, order your credit report and check it for errors. You can do so at any of the three credit bureaus: TransUnion, Equifax or Experian. Thanks to a ruling by the Federal Trade Commission, consumers in western states can now order one credit report free of charge each year. Midwestern states become eligible March 1, 2005; Southern states' residents can order a free report starting June 1, and Eastern states qualify on Sept. 1.

According to a 2004 study by the U.S. Public Interest Research Group, or U.S. PIRG, as many as 79% of credit reports have errors, 25% of which are serious enough to potentially result in a credit denial. If you find mistakes in yours, contact the credit bureau that issued it and dispute the errors. Once contacted, if the credit bureaus cannot verify that the information is correct within 30 days, they are required to remove the information from your report.

When all errors are fixed, focus on the part of your report that explains the different factors affecting your score positively or negatively, recommends F. Michael Johnson, author of "Borrow Your Way to Wealth." These are typically listed next to your credit score and are personalized based on your credit history. So if your report contains information like "too much outstanding debt" or "too many inquiries," for example, this means that to increase your score, you should pay down your balances and refrain from applying for credit for a while, Johnson says.

And bear in mind that the way you handle your credit -- from making a late payment to reaching the limits on your credit cards -- has an effect on your credit score. Making on-time payments is perhaps the most critical factor in maintaining a good credit score, along with a long credit history and low credit utilization. This means you might want to hang on to your oldest credit card, even if you don't use it, and try to use as little of your available credit as possible. (Requesting a credit limit increase also helps, as long as you don't use it.)

Perks: Have more negotiating power with your creditors and qualify for the lowest rates from insurers and banks.

4. Save More for Retirement
Everyone knows that the best way to secure a comfy retirement is to max out your retirement plans. And in 2005 you can save more than ever.

In 2005, limits for 401(k) contributions are $14,000 for people under age 50 and $18,000 for those 50 or older (up from 2004's $13,000 and $16,000, respectively). The limits for IRAs jumped to $4,000 from $3,000 in 2004, with people 50 or older allowed an additional $500 catch-up contribution. Income limitations apply, so make sure you qualify.

Of course, for many folks, socking away $14,000 sounds like a pipe dream. If so, hold off on increasing your contributions until you receive your next raise. Then, when that blessed day arrives, add most of it to your 401(k), suggests Kay Shirley, a Certified Financial Planner and president of Financial Development Corporation in Atlanta. "That way, you still have the same take-home pay -- or perhaps a bit more, so that you feel like you got a raise -- and you're funding more money into your 401(k)," she says.

Perks: The retirement of your dreams, not your nightmares.

5. Reward Yourself
If you're the type who pays off your credit card balance in full each month, you deserve a reward. And these days many credit card companies are offering them, at no additional cost.

The choices are endless, from cards that reward you with free coffee or beauty products, to cards that donate a percentage of your purchases to environmental causes, such as the preservation of wetlands and its inhabitants. There's even a credit card that lets you choose the rewards and design, using a photograph of your own.

These cards are available to all consumers, of course -- even those who carry balances. But our advice is that if you do carry a balance, your main priority should be to find the card with the lowest APR, rather than the most generous reward program. Of course, many of today's rewards cards also offer very competitive interest rates.

Web sites like CardRatings.com and CardWeb.com can help you find the right card for you. In the past, SmartMoney.com has recommended a variety of credit cards that help pay down your mortgage or save for college, as well as cards that offer extra rewards on purchases at gas stations. To read about some of the traps that may come with a rewards card, click here.

Perks: Play your cards right and this is perhaps the one time we can think of when the lunch really is free.