Make Money From Your New Year's Resolution!

Keeping your New Year's resolution to quit smoking could save you 40% on your life insurance and nearly £40,000 on your mortgage. Alternatively, you could increase your pension by almost £134,000. Find out how...

It's that time when people up and down the country are making New Year's resolutions in the hope of enjoying a better lifestyle in 2009. I've made about twenty ranging from limiting my excessive consumption of cheese to boosting my savings by an extra £2,000 before 2010 arrives. (Although I  must confess I've broken the cheese one already -- oops!)

Every year thousands of people vow to turn over a new leaf by giving up smoking. According to Alliance & Leicester, one in ten of us have resolved to kick the habit for good in 2009.

If this sounds like you, not only will your resolution have huge health benefits -- if you stick to it -- but it could also be pretty fantastic for your finances too. Here's how:

Let's say a typical pack of 20 cigarettes costs about £5.66 and you buy one pack every day. After a month you would have spent around £175 on your habit. That's £2,100 over the year. Crikey!

So if you stop spending that money on cigarettes, what should you do with all the extra cash?

Start saving or save more

A&L's research reveals one in ten people has resolved to open a savings account for the first time in 2009. While one in four of us have promised to save even more than we already are. Building up a healthy savings pot is certainly a popular choice this year, which is hardly surprising given the current financial crisis.

But where should you put your money? You could try a regular saver account and deposit £175 into it every month. Even though most savings rates are falling right now, HSBC current account customers can still earn an excellent 8% fixed on monthly savings for a year. Find out more in Fool writer, Cliff D'Arcy's recent article Earn A Collosal 8% On Your Cash.

Savers who don't bank with HSBC can get great returns for the next year from Barclays Bank Monthly Savings Account or Principality Building Society Regular Saver Bond (Issue 6) which both pay 6%. If you earn 6% on your savings for the next ten years, you will build up a pretty decent savings pot of almost £29,000.

However, you'll need to keep your money tied up in these accounts to benefit from the high rates.

If you need easy access to your cash, try the ING Direct Savings Account instead. It pays 5%, including a 2.17% bonus fixed for 12 months, and you can open an account with just £1.

Overpay your mortgage

Imagine what an extra £175 every month would do to chip away at your mortgage loan.

Let's say you have a mortgage of £150,000 over 25 years and your repayments cost you £921 a month (at an interest rate of 5.5%). Now if you overpay by £175 -- taking your repayments up to £1,096 -- what will happen to your mortgage? Not only will you save £39,787 in interest, but you'll also arrive at your mortgage-free day 7 years and 4 months earlier. Now that can't be bad!

Use our mortgage overpayment calculator to see how much you could save. But do check your mortgage is flexible and you can overpay first.

Clear your debts

We've already spelt out the risks of repaying the bare minimum on your credit cards. Read my Foolish friend, Szu Ping Chan's article The Dangers Of Minimum Payments. Many credit card companies will allow you to get away with repaying just 2% of your balance every month. But by topping up your repayments by £175, your debt will disappear far more quickly.

Read The True Cost Of Credit Card Debt to find out how.

Put it in a pension

Did you know by putting just £175 a month into a pension for the next 35 years, you could end up with a pension pot worth almost £134,000* by the time you retire. Pretty good when you consider that, if you spend the money on cigarettes instead, your pot would consist of precisely nothing at all. (Plus, if you quit, you're likely to be in much better health to enjoy your retirement!)

And get cheaper life insurance in 2010

If you smoke and you buy a life insurance policy, your premiums will be much higher than a non-smoker because of the greater risks to your health, and therefore the greater chance of making a claim. But many insurers will count you as a non-smoker once 12 months has passed since you gave up. This could equal big savings because non-smokers pay around 40% less than smokers for the same amount of life cover. So when 2010 comes switch your policy and save yourself a packet.

Or if you just feel like rewarding yourself for kicking the habit

The £2,100 you save in 2009 could pay for a fantastic holiday in 2010. Enjoy!

*Assumes you start saving at 30, your pension pot grows by 7% a year and inflation rises at 2.5% a year.

More: Three Ways To Make Some Cash! | How To Make Your Money Last Till Payday!| Compare savings accounts at The Fool