With 2020 upon us, everyone is trying to stick to their new year's resolutions. As you make a pledge to spend more time with friends, family and the gym, use this opportunity to also evaluate your relationship with money. A new year, and a new decade, bring a fresh promise of possibility and it’s a great time to create a financial plan you can leverage for the next year and beyond.
Here are 10 money resolutions to consider setting for the new year … that’ll hopefully make it past February.
1. I will get to know my spending habits:
First things first: Make sure you know what your take-home pay is, or your income after taxes. Then, look at how you spend your paycheck. Picking out trends will help you understand where you’re most likely to spend and where there are opportunities to save. Confronting your credit or debit card statements can be daunting, but don’t feel embarrassed (it’s a sunk cost!) and just remember this will help you create a more realistic plan going forward.
2. I will create (and try to stick to) a budget:
Consider the 50-30-20 rule. Fifty percent goes toward “must-haves” like groceries, rent, car insurance or other expenses that you can’t or shouldn’t live without. Thirty percent goes to discretionary spending like entertainment or shopping. The last twenty percent goes to savings and investments. This rule is really a guideline and you can adjust the weights based on your spending habits so that it reflects an appropriate strategy you’re most likely to stick with.
3. I will invest in my retirement:
Retirement might seem like a lifetime away, but saving for it should start now. If you work for a company that has an employer-sponsored retirement plan like a 401(k), make sure you’re taking advantage of it. 401(k)s provide an opportunity for tax-deferred growth that compounds over time and many employers will match a share of your contributions, so failing to participate essentially means you’re missing out on free money. Starting early is important—the earlier you start saving (and investing), the more time your assets have to grow.
4. I will max out my HSA:
Often underappreciated, Health Savings Accounts (HSAs) are available to individuals covered by high deductible health plans (HDHPs), and often provide investment options similar to a 401(k). Combined with their triple tax advantage (no tax on contributions, growth or distributions as long as the funds are spent on qualified medical costs), this makes them one of the most effective ways to save for healthcare expenses in retirement. If possible, you should try to max out both your 401(k) and HSA contributions. Read our HSA Q&A to learn more.
5. I will get rid of my debt:
Having debt can feel like a nagging worry that’s always in the back of your mind. To ease that burden, start or continue making your minimum required monthly payments if you can. Don’t forget that interest adds up, so it works in your favor to pay off your debt sooner rather than later. If you have multiple loans, make sure you know the balance and interest rates for each. Refinancing, even if you have just one loan, can help shorten your repayment schedule.
6. I will invest in long-term trends:
Long-term trends, like automation, smart mobility and renewable energy, are particularly well-suited for younger investors with long investment time horizons. And, according to the last UBS Investor Watch survey, 84% of 18-34 year olds are highly interested in aligning their portfolios with them. To that end, consider thematic investing, which links long-term trends and related social and environmental challenges to investment ideas. If you’re looking to align your portfolio more closely with your values, thematic investing with a focus on sustainability offers a unique solution.
7. I will give to a cause I care about:
Investing in others can be just as rewarding as investing in ourselves. If you want to give toward long-term philanthropic goals, consider putting money into a Donor-Advised Fund (DAF), where it can be invested with growth potential in the interim. But giving money is not the only way to give back—you can give back with your time. In addition to donating to your choice of charity this year, spend time volunteering in your local community or on behalf of a cause you feel passionately about.
8. I will engage with my friends:
Don’t be afraid of having the “money talk.” If you and your friends don’t normally discuss personal finances, make a commitment to break that trend. Talking about money doesn’t have to be awkward. Often, sharing stories can help validate personal experiences. And, just like how you may have a gym buddy, creating financial goals together can increase personal accountability.
9. I will stay informed:
If you aren’t already, become more familiar with the markets. Knowing how and why the market moves can help you better understand your portfolio and investing strategy (careful, though, don’t fall for the “action bias"). There’s a lot of information out there, but you can start small. Subscribe to a podcast or newsletter you can listen to or read on your commute. You can even use social media, like Twitter, to help pick up key headlines throughout the day.
10. I will enjoy my money:
Last, but not least—remember to have fun! Spending money shouldn’t make you feel guilty. You’ve worked hard to earn it and you should get to enjoy its perks without any regrets. Money should help us feel empowered, especially when we’ve taken the proper steps to become comfortable with our spending, saving and investing goals. Go ahead and order that avocado toast (don’t worry, you’ll still be able to afford your down payment).