All Things Financial Planning Blog

Money Resolutions

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We are getting toward that time of the year again where we start to reflect on the events of the past year and look forward to the opportunities ahead. Instead of waiting for the traditional day to initiate a new set of New Year’s resolutions, stop procrastinating and start one or two a little early.

The most challenging aspect of resolutions, especially those that involve money, is keeping the personal commitments. One method to achieve a better success rate is to make the resolutions simple, relatively painless and most importantly, rewarded. 

Resolution #1: Increase your retirement plan contributions by 1%

This resolution suggestion is designed to start you in the right, positive direction. It doesn’t involve any daily rituals or focus or complicated accounting. It’s a simple as adding “one” to the current contribution rate of your company’s defined contribution plan whether it’s a 401(k), 403(b) or other similar plan. It may not appear to make a big difference at first, but here’s the catch. Keep raising your contribution limit by 1% each year for next 3 years.

It is often stated that the lack of retirement saving is the 800 pound gorilla in the room. I tend to look at the lack of retirement planning as the elephant in the room. Given that a male elephant may weigh 24,000 pounds on average, now we are talking about something that can’t be ignored. Question: What is the best way to eat an elephant? Answer: One small piece at a time. By raising your contribution limit by 1% annually, you are “eating” your retirement elephant one piece at a time.

Resolution #2:  Establish one short-term goal

Short-term goals give you the ability to achieve personal success relatively quickly. Success begets success and as your confidence in obtaining your goals grows the easier it is to set more significant targets.  Here are two examples of short-term goals.

  • Pay your bills on-time: If you chronically pay your monthly bills late, focus on paying one before the due date. Paying bills late will usually generate late fees, which can add up to serious money over time. A $20 late fee for 3 bills can add up to over $720 per year alone.
  • Set up or modify direct deposit: Direct deposit is a good way to keep money squirreled away. If you have all of your paycheck going directly to checking, add a savings account. Automatically transfer 2% of your net pay every time your check hits the account. Again, nothing onerous but it’s simple and effective.

Resolution #3: Review your financial foundation

When individuals think of their financial foundation they immediately consider their savings, retirement plans, investment accounts, home and other assets. This is not the foundation but the first, second and for some, third floors of their financial structure. The foundation is the documentation that is necessary to weather any financial storm that may hit. Your foundation should include at the minimum a simple will, powers of attorney for property and powers of attorney for health care. These are the basics, nothing very complicated and relatively simple to put in place. The best place to find a competent attorney is to find a professional who specializes in estate planning. Check with friends, co-workers or the Financial Planning Association for referrals. In a hurry or on a very tight budget? There are a number of online services including Legalzoom.com. These sites don’t offer legal advice, but helpful questions that can guide you should your needs be relatively straight forward.

Resolution #4: Establish one long-term goal

The establishment and completion of a long-term goal is, for most, cause for celebration. Long-term goals take focus and commitment. If achieving long-term goals was easy, we wouldn’t have dozens of magazines published on a monthly basis that are dedicated to informing us about money or health. A long-term goal can be anywhere from 12 months to many years into the future. Here are a couple of long-term goals to consider:

  • Pay off one credit card: Take the credit card with the highest balance and within 18 months get the balance to $0. For some, this is no easy feat. Remember, it took a while to build up the balance and it may take awhile to knock it down. Come up with a spending plan to reach this goal. Like training for your very first marathon, you don’t start day one running 26 miles. You slowly build, day-in and day-out, week-in and week-out until you are prepared. It may take some effort, will power and focus but it can be done.
  • Cash Vacation: Do you take vacations the old fashion way? Most likely not. One of the reasons consumers take on high credit card balances is due to the play now and pay later mentality. How about a long-term goal with a terrific reward – the all cash vacation. A trip of this nature takes on several positive attributes. The trip needs to be planned relatively well. Develop a spending plan that includes travel, meals and lodging. Once the dollar amount is determined, develop a savings plan to meet your goal. Now back into a date for your trip by taking the amount you need and dividing that by your ability to save. The bigger the trip the longer it may take to save. Instead of one large trip, try smaller excursions to create the positive feeling of achieving your goals and resolutions

Resolutions should not come around only once per year. There are many goals and resolutions that should be made throughout the year. The key to success is keeping targets realistic and manageable. Start simple, start small and you will be surprised at how easy it will become to meet your money resolutions.

Ed GjertsenEdward Gjertsen II, CFP®
Vice President
Mack Investment Securities, Inc.
Glenview, IL

Author: Edward W. Gjertsen II, CFP®

Edward W. Gjertsen II, CFP®, currently serves on the board of directors for the 24,000-member Financial Planning Association® (FPA®). He is vice president of Mack Investment Securities, Inc. in Glenview, Ill. and founder of The Mutual Bond Group, an organization dedicated to guide surviving spouses to financial independence. Gjertsen has been a member of FPA and its predecessor organization (International Association for Financial Planning) since 1996. Gjertsen served as FPA of Illinois chapter president and director of technology, and was awarded the FPA of Illinois's 2008 Heart of Financial Planning Distinguished Service Award. Gjertsen served as co-chair of the president/president-elect track for FPA Chapter Leaders Conference 2008, is a co-founder of the FPA diversity committee and will serve as 2010 diversity committee chair. Gjertsen holds a Bachelor of Science in economics from Illinois State University.

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