6 Resolutions for the New Year
The New Year is traditionally a time for new beginnings and course corrections. If your financial life isn’t keeping up with your expectations, here are six New Year’s resolutions that can help you get on track for the financial future you desire.
1. Get a plan. It is hard to measure progress if you don’t have a clear idea where you are going and how you expect to get there. A well-designed financial plan can do this for you. Be careful as you select a planner, however. Some financial plans are designed more to sell financial products like insurance or mutual funds than to develop financial strategy. Make sure you work with a planner who will focus on where you are trying to go. The National Association of Personal Financial Advisors, or NAPFA, is a great resource for finding good financial planners. Try their website at www.napfa.org.
2. Live your plan. A good financial plan is like a good roadmap—it does you no good unless you follow it. Your financial planner can help you systematically implement your plan. Once your plan is in place, stick with it. Take time to review your progress with your planner at least once a year.
3. Pay yourself first. Too many people work hard and earn a good living, but they pay everybody else before they pay themselves. Here’s a simple rule of thumb: before you pay any other bills, put 10 percent of your paycheck into some kind of long-term savings vehicle. This can include your company’s 401(k) plan, an IRA or a brokerage account. If you are trying to build an emergency reserve, you can put some of your savings into a high yield money market account at a local bank.
4. Pay down your debt. In the aftermath of the 2008 financial crisis, many people paid down their debt. Unfortunately, American debt levels are once again on the rise. If you are carrying personal debt—especially credit card debt—lighten your load and pay it down.
5. Cut the fat (out of your spending). If you are going to pay yourself first and pay down your debt, you are probably going to have to change your lifestyle to make it possible. A good way to do this is to take a careful look at where your money went in 2018. Divide your spending into three categories: A) spending that was essential (i.e., for housing, food, transportation, etc.), B) Spending that was important, meaning it supported the value and activities that bring meaning to your life, and C) All other spending. Your biggest opportunities to cut the fat in your spending will be in the last category. Reducing your spending will require sacrifice. However, the increased confidence that comes from knowing you are building a solid financial foundation will make the sacrifice well worth the effort.
6. Pay attention to your portfolio. Market volatility can be scary. You may feel like hiding when your monthly statements come in the mail. If you are a regular reader of this column, you will know that I advocate patience when investing. However, there is a fine line between patiently riding through volatile markets and neglecting your portfolio. An investor whose portfolio is well-diversified among high quality investments can endure market volatility with confidence and patience. On the other hand, if your portfolio is overly concentrated or if you are invested in speculative investments, you may want to consider making some changes. The beginning of the year is a good time to review your investments—including in your 401(k) account—to see if your portfolio is structured as it should be.
Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to firstname.lastname@example.org.