New Year's Financial Resolutions
The year is coming to a wrap. For many this year was something we want to put behind us; some of us had a wonderful year despite everything, but for everyone 2020 was a shake-up. With volatile changes that occurred in 2020, everyone must react and pivot parts of their lives moving forward. So, with the turn of the year, many of us practice resolutions to normalize, improve, and grow from the previous year’s paradigms. Resolutions often focus on personal health. If you starting a resolution for 2021, I encourage you to think not just about your physical health but your financial health. Side note, people oft view New Years Resolutions with an eyeroll, or some may be chronic resolution starters – but never finishers. I embark not to harp on what you think about resolutions, goals, or anything that smells of self-help, but spark some ideas on how you can dig deeper into your financial well-being.
Once you finish jotting down your new workout plan, journey down to your bank information and start conjuring some thoughts on what you should focus on in 2021. For any goal planning, not just financial goals, we can only focus on what you can control. 2020 held many events that were outside of anyone person’s control; the same will happen in 2021. For example, if you would want to receive a raise, focus on how to communicate, and add value to your employer, not putting your resolutions in the hands of someone else’s decision. Secondly, and at BWM, you probably have heard it over and over, stick with the plan. Easier said than done of course, but the benefits of shutting off other options and staying the course is always the best path. So, what are some smart New Year’s financial resolution consist of? I like to break it down as simply as possible. What are the things to do, and how do you accomplish those goals?
What to Do
Financial resolutions are simple: maximize money coming in and put that money in the right places. Pretty simple, right? Let us get creative. To maximize money, three ideas come right to mind. First, tax savings. There are several different tax strategies to implement that may have the potential to put money back in your hands, rather than Uncle Sam’s. Reach out to your advisor or google some different strategies to make sure you are using the tax laws for your benefit. Secondly, pick up a side hustle. Have any spare time? Do you have a specific hobby you can turn into a cash generating gig? Just really need a few dollars around the edges. There are endless ideas on how to start finding cash. Lastly, like I mentioned before, strive to get a raise. Yet, be cautious on this and focus on what you can control. Make the goal achievable regardless, by striving to get a raise by adding value etc. If your employer says no, then that is okay – you achieved as much as you could towards that goal. These are three ways to maximize your income, the second part is putting it in the right place.
Every dollar that comes into our wallets, we must take priority and responsibility over it. Anyone who can manage $10 well will be able to $10,000 well and so forth. Here is my cliché sports analogy: When lifting weights, it is way more important to have good technique, as opposed to lifting the heaviest weight. So, it is way more beneficial to be a financial wise person with a net worth of $50,000 then it is to be a reckless person with a net worth of $5,000,000. Thus, where do we responsibly put our money? First, tax qualified investments like a Roth, IRA, or 401k. $500 a month will max out a yearly IRA, and is a good saving starting point. If $500 is too much or too little. Saving 10-15% of income is a solid rule of thumb to shoot for. Contact your advisor or keep sticking with your investment plan to make sure each dollar is properly allocated. Another resolution idea may be to give more. Set out a giving goal for 2021. I do not have a stat lying next to me, but I would venture out to say that those who give more tend to be happier in the long-term. Lasty, a place to put your dollars may be a 529, for those who have children. Setting up a re-occurring deposit into a 529 account can go a long way. It may seem grueling, and tedious, but when that child, or family member needs education funding, it will be worthwhile. Remember, you do not have to do all of them. Just pick one or two to focus on in the coming year and stick to it whether it be raising your income or starting that retirement savings you keep putting off.
How to Do it
Log into your investment account, put the money in, call it a day, right? Well, the acts of completing some of the goals may be simple but there are typically lots of reasons we do not accomplish them. Improving your financial well-being is a holistic process, there are several factors about yourself that need to be dealt with, that connect to a financial problem. One technique to accomplish some of the goals listed above could be partnership and accountability. Having someone you set investment goals or do a side hustle with is more sustainable and enjoyable! Having someone checking to see if you will invest that cash, or if you spend it makes a tangible difference. If you have a workout buddy, you should also have a finance buddy! Secondly, create and stand by that budget. Check out our previous blog on some ideas to think about budgeting. If your goal is to invest $1,000 every month, but you do not have a consistent budget, you have a significant chance of not meeting your goals. Why? You will have zero roadmap to see what went wrong. Did you eat out too much, too many amazon purchases? You will never know if you do not go back and review the budget! Know thyself and know your tendencies. Do not try to run uphill and make a goal that is relatively unattainable to your preferences. Lastly, and to no surprise, use some grit. Making changes for the better, much less financial changes, are incredibly difficult. There is no secret formula. The only way to do it is to do it.
Hopefully, everything in this writeup you have heard in some way, shape, or form; there is no magic key. If we want to look ahead and improve brick by brick it takes effort and determination. Look back on 2020 with positivity, and lessons learned to carry forward into 2021. So, in tackling those resolutions in 2021, focus on what you can control, and stick with the plan! I will leave with a quote from the Richest Man in Babylon, a book lining basic principle of personal finances.
“In those things toward which we exerted our best endeavors we succeeded”