Another year, another list of new year’s resolutions. Most of us pick lofty, broad goals with no action plan on how to get there (for example, “be better with my money” or “lose weight”). These kinds of non-specific goals usually result in failure because there is no plan to achieve them or because the goal setter attempts to overhaul their life in a huge and disruptive way that ends in burnout. So about a third of those resolutions will be dead in the water by February. Instead, why not resolve to make five small changes that will result in major financial change for you in 2020? Making small, effective, and easily implementable changes can blaze your path toward resolution success.
Set Up An Emergency Fund
Everyone’s luck will eventually run out. There’s always a rainy day coming even if you have had a whole year of sunshine. Whatever euphemism you choose to use to frame it, everyone has a need for an emergency fund. But about a quarter of Americans don’t have a rainy day fund, much less enough savings set aside in an emergency fund to cover 3-6 months of expenses. Whatever amount you can start with, open an online bank account and start saving. Building an emergency reserve will protect you and your family against any financial mishap (loss of job, medical emergency, fire or other housing emergency, natural disaster, etc), and will lay the foundation of your financial success. No matter how big or small, set up monthly automatic transfers from your checking account to the online bank account and then do not touch the funds for any purpose outside of a true emergency. An online bank account is a perfect place for an emergency fund because many online accounts offer interest rates around 1% (higher than most banks) and you cannot access the funds on a whim since it may take 24 hours to transfer funds to your checking account. But 24 hours is usually enough time to access the funds you need in an emergency.
Increase Your 401(k) Contribution by 1% Quarterly
There is no way to make up for compound interest, so socking away as much as you can for retirement now means it can grow faster and larger by the time you retire. Start by increasing your 401(k) (or 403(b), TSP, IRA, SEP, whatever retirement plan you have) contributions by 1% now, and up it another 1% for each quarter of the year. By the end of the year you will have increased your retirement contributions by 4% with nary an eyelash blink. Removing 1% of your take-home pay from your paycheck means you won’t be tempted to spend it before you save it and you then have three months to adjust to that small loss of monthly income. By the end of the year you will have gotten used to living on 4% less and that money is working harder by compounding than it would have worked just sitting in your checking account waiting to be spent.
Evaluate Your Cash Flow
How are you spending the money you earn and how much of it are you saving? If you are saving very little or none at all, how can you increase your savings rate to build that emergency fund and invest for the future? This is not an overnight fix. Even if you decided overnight to siphon 15% of your income into savings, if you haven’t adjusted your cash flow and spending then you will find yourself dipping back into savings to pay for day-to-day expenses. Baby steps are the key to lasting change, so take small steps one at a time to evaluate your spending, cut some bills, set up a budget, and increase your savings rate slowly.
Get Your Insurance and Wills in Order
There’s no time that is too early to have life insurance and a will in place, but there is most certainly a point where it is too late. Sieze the day and get it done. Sure, setting up a will and getting underwritten for life insurance isn’t the most exciting use of your time and money, but it doesn’t have to be depressing. Think of these things as a loving hug that you give your loved ones as a last goodbye. Taking care of the people that you leave behind is the best way to tell them they are loved and secure, so keep that mindset when you pursue this task. Financial success is about growing your assets and protecting your family. Focusing only on investing and not putting a will and insurance in place may mean that your family ends up spending their inheritance on lawyers due to arguing over who gets what, the trust and charitable contributions you had intended to set up never happen, or your family is left in the lurch without your income to pay bills and debts.
Hire a Financial Planner
We cannot all be experts at everything, so why try to give yourself advice you are unqualified to give? Instead, hire a professional to help you with your finances. A financial planner can walk you through all these steps, help you devise a plan, keep you on track, and cheer you on all year. It is hard to talk about money with your friends, and their advice is likely worthless anyway, so talk about your money questions and issues with someone who is comfortable discussing it and qualified to provide you guidance.
Taking small steps toward big change is a powerful way to make money moves in 2020. Don’t overwhelm yourself by trying to change everything about your finances at once. Ditch those resolutions that don’t work anyway, and get yourself some lasting change, one baby step at a time.
