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Making realistic financial resolutions you can live with

by Phil Tull | February 3, 2020 | Financial Planning, Retirement Planning

Let’s be honest—drastic New Year resolutions are overwhelming, especially when it comes to money and retirement planning. So, let’s break it down into some bite-sized applications for right NOW.

Many of us ask ourselves each year, “How do I make this year’s finances better than past years without a massive overhaul of my lifestyle?” We don’t recommend trying to revamp your entire financial lifestyle overnight. It’s just not realistic or sustainable. The answer is much easier than you may think and you can achieve it with a few tiny steps to avoid frustration or failure.

Below are five areas for you to take tiny steps starting TODAY to improve your finances and begin your retirement planning:

1. Saving
Consider putting aside just 1% of your monthly income. Regardless of your income level, it’s likely that 1% isn’t going to be very noticeable or throw your monthly budget off by that much. Do it and see!

If a percentage doesn’t make sense for you, or you just don’t want to do the math, find a set amount you could start setting aside today that doesn’t cause you to blink. Set up an automatic draft to your savings account and treat it like any other bill that must be paid every month. Even as little as $10 or $25 per month is a great start to get in the habit of saving.

  • The next step is, in six months, increase what you started saving today by 0.5%
  • In another six months (one year from now), increase it again by 0.5%. In five years, you will be saving and investing up to 10% of your income and taking big strides toward your retirement planning goals. Doing it incrementally allows you to adjust your budget and mindset over time, so it doesn’t feel like a huge financial overhaul all at once.

2. Budgeting
Creating a major, calculated budget and putting everything you buy into tidy categories can sometimes be overwhelming and unrealistic. Rather than reviewing every single purchase you make, start with thinking about ONE thing you can cut out of your weekly expenses. You don’t have to eliminate your daily coffee break. Maybe you can just switch from Starbucks to a slightly cheaper alternative like Dunkin? Or even home brew. Could you scale back on going out to eat by packing a lunch four times a week rather than three?

Do that for a month, then see if you can find something else you can reduce or even eliminate. Take a pass on that soda or glass of wine with your meal and order (free) water instead. It’s better for your body and your bank account. And do you really need the name brand seltzer water or is the store brand actually just as good? The key here, again, is not to get rid of the things you love, but to make more budget-friendly choices.

Although we are only talking $5 or so a week, you would be surprised by the impact these “splurges” can make. It all adds up.

  • Cutting back on $5 “splurges” once a week is equivalent to $260/year, $2,600 over 10 years or $3,659 with interest*
  • By the end of the year, if you’ve eliminated one $5 splurge each month, you are saving $60 a week, which (if invested) in 10 years could equal $43,907**
  • *Assuming $5 invested per week growing at 8% compounded monthly
    **Assuming $60 invested per week growing at 8% compounded monthly

3. Payroll and Taxes
Do you owe a lot or receive a big return each tax year? If so, that means something isn’t calculated correctly on your W-4. Not knowing if you’ll owe taxes or get money back can be stressful and can keep you from saving, or can encourage you to spend money when you get a return, when in reality you should have just been receiving that money in your paycheck throughout the year. To avoid surprises at tax time, update your W-4 online by using the IRS tax calculator to ensure you aren’t over or under withholding.

Yes, people love a tax return, but the truth is that over-withholding causes you to lose out on money you could have invested. You’ve essentially given the federal government an interest-free loan over the last 12 months. Under-withholding may mean a surprise tax bill or even owing a penalty. Take control and own your finances—don’t wait!
Utilize the 1% concept and have your employer start transferring that money automatically into a retirement account. If your employer offers a match program and your cash flow can afford it, save the maximum amount that will get matched. That is “free” money waiting to grow and be utilized.

Evaluate your benefits packages to see if your current insurance plan is covering what your medical expenses generally equal. Is there a better plan available that fits your needs or at a lower cost? Does your plan have health savings options (FSA, HSA)? If so, set up an automatic transfer into those accounts as they are tax-free savings (used for qualified medical expenses) that can be rolled over year to year (subject to plan specifics). Some employers will also match health savings contributions, and if yours does, take full advantage of that “free” money if possible.

4. Investment
If you have investments, the new year is the time to review them. Are your fees reasonable according to industry standards for the sector and objective? Did your company retirement plan add lower cost investment options? Did they change platforms? Does your current investment mix still fit your needs and long-term objectives?

If these questions feel overwhelming, then it may be time to call in a financial advisor to help you navigate them. Your investments should make you the most money possible; and sometimes that means also investing in a professional to help you reach your financial goals.

5. Reward yourself—live your best life today!
What can you do today that you would enjoy? Is there a financial aspect that is holding you back? Maybe for every $5 you start saving each month, $2 goes toward “that moment.” Let’s bring those moments into today! Find a way to laugh, bring joy, or simply find fulfillment in your daily life rather than stockpiling every spare dollar for a faraway future.

Thinking about planning a ski trip to the Swiss Alps? Great! Start putting those two dollars towards that savings. Maybe the first week you do so, put your beanie and snow gloves on and jump on a ski game at the arcade with your spouse, a friend, or your kids. You CAN live in the moment while also planning for your future moments.