We're a few weeks into 2017. By now you're either kicking ass, or you've entirely given up on the resolutions you set for yourself. Either way, it's a perfect time to focus on one of the areas we often forget about when setting resolutions:
When it comes to resolutions, everyone's all about improving their physical and/or mental health. But your financial health needs to be a priority too because, just like physical and mental progress, it takes time to see the fruits of your labor. So here are 17 financial resolutions to get you on track in 2017!
#1 - Read more
You're already here reading this article, so props to you for taking the first step! My favorite resources for beefing up your financial literacy (aside from ReisUP, of course) include publications like Barron’s, The Wall Street Journal, NerdWallet, and The College Investor. Books such as Tony Robbins’ Money: Master the Game, Alexa Von Tobel’s Financially Fearless, and Bobbi Rebell’s How to Be a Financial Grownup are all very good reads as well. I’ll be putting together a “best of” money books list soon, so stay tuned!
#2 - talk money with friends and family
For whatever reason, talking about money with people you love can be really uncomfortable. But it NEEDS to happen, especially when it comes to your parents. Talking to them about how well (or poorly) they've planned for retirement and potential long-term care needs will make sure you're all on the same page. No one wants to be blindsided when the bills start piling up and you're looked to for support.
#3 - Take an objective look at your financial picture
This one can be scary, I know. It's like examining your naked body under bright lights and a microscope; who in their right mind would want to do that? But just like health problems, the longer you sweep money issues under the rug, the bigger they're going to get. So bust out your detective hat, magnifying glass, and financial statements and see what you're really spending money on. What did you buy last year that wasn't worth the dough? Gifts for other people or yourself? Impulse buys? Take a good, hard look at what you spend money on and see if there are any habits that you can kick. No matter who you are, there's always room for improvement. (I need to spend less on Mediterranean TERRA chips, for example. It's becoming a problem...)
#4 - Stop the bullshit
This one goes hand in hand with #3. There are soooo many financial lies we tell ourselves and excuses we give for why we buy this, or why we don't have money for that. You know what yours are. Stop it. Do you spend way too much money on stuff you really don't need from Amazon ("But I have free Prime shipping!!")? Knock it off. Do you go nuts when your favorite stores have sales? Guess what: 25% off a $40 sweater is only 10 bucks. A) Do you really need another sweater? and B) Is it really worth $30 to you? That $30 could be $140 in 20 years if invested at 8%. Might not sound like much, but think about how many times you've purchased something on sale for $30 and never used it, then multiply that number by $140. YEAH. It adds up.
One of the biggest excuses I hear is:
“I can't afford to invest! I can barely pay my bills.”
This one frustrates me because we're all free to make our own choices. So I feel obligated to serve a little truth here. As an objective and very observant bystander (not to mention aspiring CERTIFIED FINANCIAL PLANNER™ who’s trained to identify financial strengths and weaknesses), I notice what you spend money on. I see how you prioritize your expenses, and let me tell you something, you're not putting yourself first. How much time or money do you spend doing things for other people? How much money did you spend on Christmas gifts? How much did you spend on that home decor or impromptu Europe trip that definitely wasn't "necessary"? When push comes to shove, in disability or retirement, are those gifts, decorations, or trips going to pay your bills for you? Allow you to live the life you want to live? No. The faster you accept that and make paying yourself first a priority, the better off you’ll be.
#5 - Change your definition of “investment”
I hear this all the time too. People spend crazy amounts of money on things - new cars, designer leather jackets, the latest electronics - and justify the expense by saying it’s a "good investment". Sorry to break it to you, but those don't qualify as investments. An investment is something that's supposed to pay you income or increase in value in the future. Most of the things people call "investments" are actually rapidly depreciating assets that lose value over time. New cars lose 15-20% of their value every year for the first few years. Technology becomes outdated in the blink of an eye. When the time comes to sell those items, the price you'll get will be significantly less than what you paid. Redefine your definition of "investment" and watch the money roll in, not out.
#6 - Pay yourself first
If there's only one resolution you stick to this year, make it this one. Pay yourself first and invest in your future. I know it's not as appealing as spending money on cool stuff now, but think about how great true financial independence will feel down the road. Not having to rely heavily on shaky Social Security. Not being a financial burden to your children. Being able to spend undivided time with friends and family.
Commit to working at least 4 hours per week for yourself. In other words, set aside at least four-hours' worth of pay for your future. If you're working a 40 hour week, that's 10% of your income. Where to put that money? Check out the next 7 resolutions for ideas!
#7 - Increase your retirement contributions
Even if only by 1% of your income ($400 if you make $40k per year). If you automate it, you won't miss it, and your future financial security depends on it. Pay yourself first. Always.
#8 - Max your employer match
I can hammer this point until the cows come home. If your employer offers to match 50-100% of the contributions you make to your retirement account, for the love of free money, make sure you're contributing enough to max out their offer! It's FREE. MONEY. Enough said.
#9 - Figure out your retirement plan (finally)
Let’s be honest, you've been saying "I’ll figure it out next year" for years now. It's time to finally figure out your retirement plan!
Luckily, I've got two courses that will help you do just that. Check out MONEY (everything under the personal finance sun, including investing and retirement) and WEALTH (just the investing and retirement modules from MONEY) to finally take control of your retirement plan.
#10 - Open an IRA
If you're maxing out your retirement account at work, or maybe you don't have one, or you do but you're not happy with its fees or investment options, maybe it's time to open an Individual Retirement Account. They come in a few different flavors depending on your situation and goals (traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, spousal IRA, etc). Either way, they're pretty easy to set up, and you can still contribute up to $5,500 for the 2016 tax year if you open one by April 15th. I'll be setting up IRAs for me and my husband soon, so make sure to check back for that article in a few weeks!
#11 - Open a college savings account for your kid(s)
There are a few ways to do this, but the most common and tax-advantaged way to do it is via a 529 Plan. Every state offers one or a variety of them, and you can enroll in any state’s, not just your state of residence. Make sure to look into each state’s plans and the difference between a prepaid plan and a savings plan before choosing one.
#12 - Buy your first stock
While your retirement and/or education funds should take priority, investing in individual stocks can be fun and rewarding if (and that's a big IF) you do your research. By buying single stocks, you may be able to benefit from above average returns and/or dividend income. This does expose you to "single-name" risk, however, so if buying individual stocks is something you're interested in, I strongly suggest doing so within the realm of a well diversified portfolio (i.e. I wouldn't invest my entire life savings in one company.)
#13 - Refinance your mortgage or commit to additional principal payments
Refinancing your mortgage at a lower rate and/or shorter term can save you A LOT of money in interest over the years. And it may not cost you that much more per month. For example, on a $250,000 house, a 30-year mortgage at current rates of about 4.375% results in a monthly payment of $1,248 (excluding taxes and insurance). A 15-year mortgage at 3.4% requires a $1,775 monthly payment. So for about $500 more per month, you can pay off your house 15 years faster AND you'll pay about $130,000 less in interest. (Seriously. Banks make a killing on 30-year mortgages.) If you can't afford the higher monthly payment, try to at least make one additional mortgage payment per year toward your principal. You'll be pleasantly surprised by how much faster your house actually becomes "yours".
#14 - Protect your ASSets
Make sure you have the proper risk management policies in place. Auto, homeowners, and medical insurance are givens, but look into disability insurance, life insurance, and long-term care insurance as well. Disability insurance especially is most often neglected - no one assumes they'll get injured to the point where they're unable to work. But what would happen if you did? How would you put food on the table? Save for your kids’ college funds? Keep working toward your retirement goals? A disability, even if only short-term, can wreak financial havoc on your life. Look into long-term disability policies, particularly ones that have an “own occupation” provision rather than ones that say “any occupation/gainful employment”. This, along with life insurance, will protect you and your family in the event of the unexpected.
#15 - Rework your budget
Once you've decided which of the above financial resolutions you want to commit to, rework your budget and make it happen! You may think there’s no wiggle room, but studies show that most people live without a defined, optimized budget. Instead, they pay their bills, then spend the rest willy nilly. Sit down and analyze your cash flow. How much money comes in every month, and how much has to go out (for necessary bills)? Allocate what's left over to your retirement goals, your education savings goals, and risk management strategies. Make these necessary expenditures, then spend what's left after you've paid yourself first. Don't save what's left after spending; spend what's left after saving.
#16 - Get a side hustle
If your necessary expenditures are greater than your income, consider getting a side gig. There are SO many side hustles available these days, and many of them are done entirely online from the comfort of your own home. Become a tutor, drive for a ride-share service, walk dogs, take surveys, sell handmade goods on Etsy. If there's a will, there's a way, my friend. Check Google for ideas.
#17 - Ask for help
Last, but certainly not least, ask for help if needed. If you've been trying to get your financial life together, but just can't seem to figure it out, there is no shame in seeking qualified help. I thought I knew a lot about money before I started the CFP® certification process, but I've been surprised by how much I didn't know. People's financial circumstances are like snowflakes: no two are the same, and some can be quite complex. If you've got goals but aren't sure how to accomplish them, reach out to financial advisors in your area, particularly those who are CFP® professionals. Don't feel obligated to work with anyone; shop around until you find someone you like. Or, if you happen to be lucky enough to have a money savvy friend or relative, confide in them and see if they'd be willing to help you. I bet that if their financial health is important to them, your financial health will be too.