8 Financial New Year's Resolutions for 2018
Shannon, McLay, FORBES
The beginning of a new year is the most popular time to set goals and make plans, and everyone’s resolution list should include a few financial resolutions. Resolutions, like goals, are best when they’re specific. When you set a resolution or a goal, think of it as picking destinations on a road trip: If you just say you want to head west, you’re probably going to waste a lot of time and fuel getting there; however, if you say you want to go to San Diego, CA, you’re going to get there faster and more efficiently.
If getting your financial life in order is a resolution for you this year, here are eight very specific things you can do to help you get there faster:
1. Save 15% of your gross income.
Most people say they want to save more, but don’t know how much they should save or where they should save it. At the Financial Gym, the first goal our client’s get is a savings goal and we start with 15% of their gross monthly income. If you make $60,000 a year or $5,000 a month, your savings goal is $750 per month. Many of our clients panic when they see their savings goals, but it’s just because it’s not something they’ve tried to do before.
The best way to stay successful and continuously achieve this goal is to set up an automatic transfer from your checking account to your savings account for this amount every month. If you need the money to pay bills, you can always transfer it back, but challenge yourself to live off of what’s left after your automatic transfers happen. It’s a sneaky way to save, and works for 90% of our clients.
2. Monitor your credit score quarterly.
The recent Equifax information leak should keep everyone on their toes about monitoring their credit. You can freeze your credit or try other monitoring services, or you can easily and cheaply monitor it yourself. I tell clients to set a calendar reminder for every two to three months to review their credit score for any changes of activity. If you have credit cards with American Express, Discover, Bank of America and others, you can check your FICO score for free at any point. There are also great sites like Credit Sesame or Credit Karma that allow you to check your credit scores for free whenever you’d like. The sooner you uncover any problems with your credit, the easier they are to fix, so it’s important to make this a regular part of your financial health routine.
3. Invest Monthly
Just like you should save regularly, you should set up a regular process by which you invest your money. Money sitting in a bank account is earning less than 1% and inflation is 2-3% which means that every day your money sits in a bank account, it loses 1-2% of it’s value. You don’t need a lot of money to start investing as there are apps that will let you invest with just five dollars or less; and they make it easy for you to automate. If you want to start investing outside of your retirement account, there are apps like Acorns, Stash Invest and Betterment that help you automate your investing and set up a regular schedule.
If you’ve funded your emergency savings and you feel prepared for your near term goals, then you should take advantage of retirement savings options you may have through your work like 401ks or 403bs or on your own like IRAs or Roth IRAs. If it’s through your company, you can automate your investing easily through payroll deductions or you can also automate through investment sites like Betterment or Wealthfront for individual retirement accounts.
4. Create a debt plan
If debt has been a constant problem for you, make 2018 the year that you start to tackle it head on. Paying down debt is like climbing a mountain, it’s going to take time and strategy and the only way to get to the top is to start climbing. The first step of your plan is figuring out the total debt you have, the type of debt you have and what the interest rates are on your debts. I suggest putting all of this in a spreadsheet, and I’ll warn you that this is a scary activity for many of our clients. It’s like stepping on the scale when you know you’ve had too much to eat; however, it’s critical in creating your plan to get rid of it. I suggest drinking a glass or two of wine before you discover your grand debt total.
After you’ve figured out your interest rates, look for ways to consolidate your debt or lower your interest rates either through 0% balance transfer credit cards, personal loans or student loan refinance options. Once you have all of the debt and interest rates set, then pick the best repayment strategy for you. Some people like using the debt snowball method where you pay the smallest debts off first while others like the debt avalanche where you pay the highest interest rate debt first. I prefer the debt avalanche; however, I really prefer whatever is going to motivate my client the most in their debt repayment journey, so pick what’s best for you.
5. Track expenses daily.
I used to weigh over 200 pounds and I finally started to lose weight when I began the Weight Watchers program. For me, the best part of the program was that it forced me to track the food I was eating. The process of tracking everything made me mindful of my eating and led me to start making more changes. You can do the same thing with your money. There are a number of free apps like Expenses OK or Spending Tracker that can help you with expense tracking or I have clients who simply put it all in an excel spreadsheet everyday. The best part about expense tracking is that it will make you more mindful of your money and force you to start to think about how you spend it.
6. Try a monthly savings challenge.
I truly believe that anyone can do anything for a month, so I suggest that you try one of the numerous monthly financial savings challenges that are out there for at least January or maybe try another one in February. My good friend runs an Uber Frugal Challenge every January that has changed lives, or you can just search for savings challenges and find your options on Pinterest or personal finance blogs.
7. Go on a cash diet.
I don’t know about you, but after the holidays, I need to eat more salads and less junk food and drink more water and less alcohol. If you spent a bunch of money on your friends and family this holiday season and you’re credit cards have a little extra meat on them, then I suggest you try a cash diet for the next few weeks or months. Limit yourself to a certain amount of money every week, (typically around $50-$100) and see if you can live off of just that amount every week. Mindfulness of your money is a large component to getting financially healthy, and nothing will make you more mindful of your money than cash.
I advise clients to go on cash diets all the time as there is neurological research that has proven that when we swipe debit and credit cards, we literally shut our brains down and we don’t process what’s happening. When you use cash, you’re forced to keep your brain engaged whether it’s counting the money to pay it out or realizing that you’re about to run out of it and have to change your plans. Cash diets are great ways to keep your spending under control and increase your money mindfulness.
8. Schedule Weekly Financial Exercises
This time of year, most of the regular gyms will be filled with people exercising to get back into shape after the holidays, and just like there’s physical exercises for our bodies, there are financial exercises for our balance sheets. I’ve shared some of my favorite’s here, and just like you’d schedule time in your calendar to exercise your body, schedule time in your calendar to exercise your financial health as well. For the best results, I suggest trying a financial exercise two to three times a week on a regular basis.