Happy New Year!  It’s that time of year when people are setting their New Year’s resolutions.  Financial New Year’s resolutions are very common, and only slightly less popular than diet and exercise goals.  Save more. Spend less. Finally set aside the 4 hours it takes to do battle with negotiate the cable bill.  Stop spending $30 on delivery for $18 worth of food.  But resolutions are hard to keep. Sources tell me this very blog post was supposed to have been done last week.  But, life gets in the way.  Unfortunately, there are costs associated with delaying improvements to your finances.  There’s the opportunity cost of money not growing the way it should.  But there’s also the heavy mental aspect of not having a cohesive financial plan.  Luckily, your friendly Philadelphia financial planner is here to help. Here are some thoughts on how to approach your financial resolutions that won’t require you to reinvent your lifestyle overnight, and should give you a better chance of keeping your resolutions.  

One Of Your New Year’s Resolutions Should Be To Give Yourself Some Credit

The fact you’re reading about personal finance and looking into what else you should be doing with your money says a lot about you.  It takes a lot of courage to accept that you are not an expert, and even more guts to do something about it.  That could mean you’re learning on your own, or you’ve decided to delegate the work to a professional (hi!).  Either way, give yourself a pat on the back, regardless of your financial status, for figuring out what the next step is.  Most people don’t take any personal finance classes in high school or college, so they’re left to figure it out on their own. No matter where you are on your financial journey, you can’t go back and change anything anyway. Onward and upward!

Soak Up The Sun

Practicing gratitude is on a lot of new year’s resolutions lists too.  There are a lot of great reasons for practicing gratitude, and your wallet stands to benefit as well.  Gratitude can make you more patient, generous, and content.  Patience can help you avoid impulsive purchases.  Generosity helps you use your money as a tool to benefit others or causes you care about, and potentially find more fulfillment in and out of work.  As for being content?  My friend Sheryl Crow says “it’s not having what you want, it’s wanting what you’ve got.”  This is an incredibly powerful money aphorism.  Being content with what you already have can help you avoid ruinous lifestyle “creep,” better known as “keeping up with the Joneses.”  Think you need that new car?  How many new-car payments would it take to fix everything wrong with your current one?  And what of the liberal bumper parkers there to shred your brand new bumper with their crudely installed vanity plate!  Whether you’re considering a new car, a bigger place, or something more modest, ask yourself if you really need it, and use the full context of all your goals to decide if it is the best use of your money. 

Honestly, Be Honest

You need to know where your money comes from, and where it’s going.  Take a chance to honestly understand how your money flows through your literal and financial house.  Let’s pause to make sure you aren’t judging yourself. That’s not the point of this exercise. Instead, this is just meant to help you understand how you manage your cash flow.  Consider utilizing software to make this easier. Mint is fine because it’s free, but the ads are brutal.  Instead, I’m very fond of Tiller HQ (I have no relationship with either, for the record).  Tiller is $59/year, but it is fantastic.  It pulls in transactions from every account you connect it to, and then automatically creates spreadsheets.  Not to mention built-in budget templates. And the ability to subcategorize big credit card purchases (not all of your $100 Amazon purchase was dog food, after all).  Don’t forget to break big, infrequent expenses into monthly amounts. Be honest about what you spend on things that aren’t monthly like vacations, holidays, birthdays, etc, so you can build them into your monthly budget. Knowing where your money goes will help you keep perspective when it comes to your goals. Perhaps more importantly, you can only begin to make changes after you accurately understand how many dollars are left over every month after paying your current expenses.

Know Your Owes

Find out what the current interest rates are on everything you owe.  One of your new year’s resolutions should absolutely be to make a plan to pay off your credit cards.  Give yourself permission to work on this over time.  Look up the debt snowball method and the debt avalanche method.  Shop around for 0% balance transfers. Talk with a financial planner to help you tackle the debt in your life and find a payoff method that works for you while balancing your other goals.

Cut A Rug

A lot of personal finance articles spout the same “stop going to Starbucks” advice as if that’s going to magically close all the gaps in your goals.  Which is great textbook advice. But you don’t live in a textbook. You probably have a lifestyle that you’re at least partially fond of. Certain things you spend money on that aren’t ideal.  This author unapologetically enjoys the heck out of creme brulee lattes on occasion and isn’t going to stop. Bringing all your discretionary spending to a screeching halt is not going to be sustainable.  Instead, I prefer to celebrate small wins. Small wins add up to big wins. Pick ONE expense to work on. By starting with one, you’ll be focused and not overwhelmed by having to reinvent your lifestyle all at once.  I have found the cable/internet/phone bill and auto/homeowner’s insurance to be easy ones to start with. The cable/internet/phone bills seem to creep up, and you probably don’t need all the channels in your package anyway.  As for insurance, the insurance carriers are masters of pricing games. They lower premiums, take in a lot of new clients, and then those new clients start making claims that cost the insurance company money. So, they raise premiums.  You should reevaluate your insurance at least every two years.  Generally speaking, “bundling” your insurance coverage can probably save you money.  Consider committing to packing lunch just one more day a week than you currently do. If you don’t pack a lunch at all, that’s fine. Again, no judgment. But $10/day, 252 workdays in 2020….carry the 9…big bucks!  Keep in mind that’s not the true cost of going out to lunch, for example.  The cost is the immediate savings PLUS what that amount, if it was invested, would have grown to.  Unfortunately, the former is dwarfed by the latter.  

Once you’ve managed to reduce one of your expenses, do yourself a little happy dance.  Then, set a reminder on your phone to review your expenses again in six months.  Wash, rinse, repeat. If you do this every six months for a few years, you’ll have hundreds, if not thousands of dollars in savings.  Again, give yourself permission to work on this over time instead of all at once.  We want this to “stick” because reducing your expenses will accomplish (at least) two very important things. It unburdens your cash flow to do other things. Fun things with family or friends. Bumping up your savings rate.  Paying off debt. MORE HAPPY DANCES.  Reducing your expenses little by little also normalizes a more modest lifestyle.  This means you won’t need to save as much for retirement!  Know what time it is?  HAPPY DANCE TIME.

Save 1% More

You can do it.  I know you can. You know you can.  Especially if you got a raise.  Most people can’t commit to saving 15% of their income if they’re only used to saving 3% now.  But most people can increase their savings by just 1% more this year.  Set it up so it’s automatically pulled from your paycheck to make it easier.  Which, done every year, amounts to tremendous increases in your savings rate over time as your income is probably increasing too.  More small wins spread out over time.

Be Selfish With Your New Year’s Resolutions

I have to get something off my chest.  It feels like most of the financial advice on the internet is focused on encouraging you to squirrel away every stinkin’ dollar you earn.  Again with the textbook advice. But these are days you aren’t getting back.  I am proud to tell my clients that I am not the fun police.  I WANT you to take vacations.  I WANT you to go to Yoga class.  I WANT you to send the kids to piano lessons. Hell, book a monthly massage.  Schedule more date nights.  Pay someone to cut the grass so you can enjoy more of the weekend.  Whatever is meaningful to you, let’s build it into your financial lifestyle, provided it’s not jeopardizing your other goals.  There is a lot of life that needs to be lived before retirement, and saving everything you make until you’re in your 60’s is a real bummer, man.  I would challenge you to use half of the savings from the expense you reduced to invest in yourself or your family, and save the other half. Just promise me you’ll use it to do something that makes your life more rewarding instead of buying more stuff. In my opinion, this will also help you reinforce the increased focus on your spending.  I bet you’ll get a lot more joy from photography or Jiu Jitsu classes than going to lunch two days a week.

Understand The Game

Make sure you understand how your employer’s retirement plan matching contribution works, if you are lucky enough to have a retirement plan at work, let alone a matching contribution.  Retirement plan Summary Plan Documents (you know those really long packets you never read when you started the job?) are not exactly light reading, and I’m always amazed at how difficult they make it to understand how much you have to contribute to your 401(k)/403(b) to get the full employer match.  Furthermore, make sure you’re not maxing out your retirement plan too early and leaving matching contributions on the table.  This is particularly a problem for people making over $150,000. Some companies offer a “true up” provision that will allow you to realize the full match you would have received, but that’s the exception.  Also, don’t forget the best-kept retirement secret: Health Savings Accounts (HSA). If your employer offers one and you have a High Deductible Health Plan, read this and do your best to max that sucker out.  

Get Sweaty

You might be surprised to see this on a list of new year’s resolutions that are mostly financial in nature.  But the truth is, an investment in your health is one of the best ones you can make.  Human beings are living longer, and it is expensive to be alive. So if you’re going to be around, you might as well try and take care of yourself.  Beyond that, we already know the average couple is going to spend north of $200,000 on out-of-pocket healthcare expenses in retirement. That does not even include long-term care expenses!  Poor health may add to that figure. Start taking care of yourself today for all of the incredible perks of being in better shape. But don’t forget there are financial reasons to get in shape too.  And the best part is that taking care of yourself doesn’t necessarily require fancy gyms or personal trainers. Walking is free.  Too cold? I see you coming a mile away (exercise pun nbd).  Try walking in a mall.  Planet fitness is $10/month.  Your municipality probably has inexpensive activities and leagues through their parks and recreation programs.  Get out there and get moving. Future you will thank today you.

Think About Chicken Parm

Some people struggle to think about what they want their future to look like, and that’s perfectly ok.  If you have it all mapped out, that’s awesome, but you still can’t skip this section. Goals and visions for the future should be revisited on a regular basis to see how you’re doing.  Maybe you’re on track to realize your goals. In that case, one of your new year’s resolutions should be to raise the bar.  But if you don’t know what your goals are, or it’s hard to imagine concepts like retirement, fret not.  I’m not suggesting one paragraph in my blog is a magic bullet, but really, all is not lost because there are prudent financial planning things that can be done while you’re figuring your goals out.  

Have you ever gotten in the car to go somewhere but didn’t have time to open Waze or Google Maps yet, and just started heading in the general direction until you have time to type in the destination (safely at a red light, of course)?  Yup, that’s what we’re doing here.  We want general directions to start if you’re not already clear about what your goals are.  Picture yourself at your parents’ age. Framing your future in terms of what you already know can be helpful if you’re really struggling.  Like when everyone else has ordered after the waiter has been back to the table twice to ask if everyone is ready to order. You panic, but then your eyes fall upon chicken (or eggplant!) parmesan. _________ parmesan is your parents’ retirement. I have never been dissatisfied with anything-parmesan but I know damn well there was probably something more delicious on the menu if I had only been bold enough to really visualize what unfamiliar dishes would be like.  As for your retirement, do you want something-parm?  Or do you want more? 

It might be helpful to look backwards too.  Think about what would make you happy if you were 90 years old and you were reflecting on the past 25 years of your retirement.  What did you hypothetically “do” that makes your eyes well up with joy?  Where did you go?  Who were you with?  What didn’t you do?  How did you spend your time?  Take a deliberate approach to this.  Dedicate every commute to work for a week, for example, to thinking about what you want your future to look like.  Then, set a reminder to do it again the week of your birthday.  Then, set a reminder to do it again six months from that.  Incremental change and reflection will help you take baby steps that add up to the clarity you need to set specific, or SMART goals.  Who’s hungry?  Once you have goals in mind, the work is just beginning.  Schedule time with yourself or a professional (hi!) to track your progress and point out strategies that can help you.

Wanna Make A Bet?

I don’t gamble.  Well, I bet on one college basketball game in 2009 and made ten bucks.  Don’t tell my mom.  But.  If I was a betting man, I’d bet you’re busy.  Like all the time.  And I bet that you have wayyyyyyyyyyyyyy more important and interesting things to do when you get done work and household responsibilities than trying to synthesize how your various accounts are doing.  If there are ways to lower your tax bill.  If you’re on track for retirement.  If you are saving enough for college.  If you have the right kind of insurance.  Those e-mailed statements you’ve probably been deleting aren’t much help anyway, since they just report your investment performance.  They don’t say how you’re actually doing.  They don’t say whether you’re on track for your goals.  The real benefit to working with a professional (me) is helping you tie all of the various pieces of your financial picture together with a comprehensive evaluation.  We’ll help you figure out exactly what you should be doing with your money and where to start.  I think one of your new year’s resolutions should be to get a check-up from a financial planner.  Before you hire some help, be sure to ask them how they’re compensated (read more about fee-only planners here). It’s important to work with a fee-only financial planner (like me) and to understand how you’re going to pay for this help.  

This concludes my far-from-exhaustive list of things to keep in mind as you work on your financial goals for 2020.  If you like bad puns and clear, actionable advice from a fiduciary (a legal obligation to place your interests first!), shoot me an e-mail at brendan@meaningfulwealthmanagement.com or book a time for us to talk at your convenience.  

Brendan