New Year’s resolutions can be tricky things. Although they are almost always well-intentioned, studies have shown that few people (less than 10% in some studies) achieve the goals they set for themselves.
This can lead to frustration and disappointment. Part of the reason we have trouble achieving our goals is that they are often unrealistic. “All-or-nothing” propositions like quitting a bad habit cold turkey or vague goals that don’t provide a way to evaluate progress both fall into this category.
One example of a vague goal is the resolution to “get your finances in order.” Generally, that means saving (or earning) more and spending less. But until you put them on paper with specific and, more importantly, achievable goals and milestones, your resolutions will become nothing more than empty promises you make to yourself and your future.
Here are four financial resolutions and some small, manageable steps that you can take to help you mark them complete by the time next year rolls around. Even if you don’t accomplish all of them, part of the value of resolutions in general is that they encourage self-reflection and evaluation.
1. Save More
- Stop accumulating and start paring down your “stuff.” Things that you no longer need can occupy physical space, require power, or have other dependencies that cost you money. Because they are usually small expenses, they’re easy to miss.
- Instead of annual savings goals, create weekly savings goals. Move your savings to a specific account to more easily track your progress. The more frequent the milestone, the more likely you are to maintain the goal.
- Evaluate your cable, Internet, and television services quarterly. Get rid of services you rarely use and take advantage of bundled packages. The range of options is astounding, with enormous savings opportunities for those who pay attention.
- Purchase high-quality household items. This may seem like a contradiction, but think about it: spending a few hundred dollars more for a top-of-the-line refrigerator or washing machine that will last for many years will save you money over purchasing a cheap appliance that will need to be frequently replaced or repaired.
- Take advantage of “BOGO”s at your favorite grocery store. BOGOs are Buy One, Get One (free). Along with purchasing needed items in bulk from warehouse clubs like Costco or Sam’s; this is a great way to stock your cabinets for less.
2. Estate Planning
- If you don’t have one, make one! You don’t have to be a multi-millionaire to have an estate plan. At a minimum, make sure you have a will, a power of attorney, and a living will.
- Document important account numbers and passwords for all your asset accounts (banking, savings, investment), as well as your debt accounts (credit cards, loans, mortgages) in a centralized place that your family and advisors can access. RAA’s Planning Ahead Organizer can help you with this. Click here to request one.
- Take advantage of the 'Transfer on Death (TOD)’ designation for some of your accounts. TOD allows beneficiaries to receive assets at the time of death without going through probate, which can be a costly and time-consuming process.
- Streamline your investments. If you are in or near retirement, speak with your advisor about opportunities to roll-up some of your assets and reduce the number of accounts you have. The more you can simplify your estate, the easier it will be to execute.
3. Pay Down Debt
- Take advantage of lower interest rates to refinance expensive debt.
- Always pay credit cards on time and pay more than the minimum.
- If possible, institute a two-month spending freeze on your credit cards.
- Transfer expensive balances to credit accounts with lower interest rates and more incentives.
- Use bonuses or “found” assets to pay down (or off) car loans and/or mortgages.
- It’s important to remember that if given a choice between investing in an asset that has a 5% return and paying down a debt that’s costing you 10%, you are “making” more money by paying off the debt.
4. Get the Most Out of Your Advisory Relationships
- When meeting with your financial advisor, focus on his or her advisory and consulting skills instead of short-term market returns or last quarter’s market news. This will also redirect your own thinking from short-term investment performance to long-term financial goals. Remember, not unlike a doctor or psychologist, the real value of your advisor is the ability to give you an impartial perspective on your overall financial picture, not just to select investments for your portfolio.
- Revisit your financial goals with your advisor on a regular basis. Goals may change significantly depending on your age and current career status. For example, saving for your children’s college may well be the most important thing when you are in your mid-thirties, but ensuring you have enough income and savings during retirement is of utmost importance in your sixties.
- Ask for help! Your advisor has a wealth of knowledge and experience not only in investments and finance, but also in other areas such as taxation, estate laws and charitable giving. These are all important factors that can contribute significantly to your financial health.
As you begin the new year, invest the thought and time to create meaningful, realistic resolutions. This way, you can be sure that the financial course you’re charting throughout your career and into retirement is a smooth one.
For guidance on your financial plan, request a call to speak with a Financial Consultant at RAA who can discuss your options and make recommendations based on your unique situation.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.