Financial New Year’s Resolutions

Champagne glasses against holiday lights

I know, I know… not another NYE article! This time of year, it seems like every marketing department that ever existed has found a way to turn their products and services into New Year’s resolutions. Some of the especially dry ones include resolutions for medication management, vehicle maintenance, and lawn care. (And for those feeling overwhelmed, don’t worry, there are apps to help you keep your New Year’s resolutions too!)

But on a more serious note, I believe there are three areas everyone can and should be continually working on:

  • Your Relationships (with family, friends, co-workers, etc.)
  • Health (through nutrition and exercise)
  • Your Finances (by paying yourself first)

Even if you’re already pretty good at these areas, there are probably still ways to improve.  To make New Year’s resolutions that stick (and to achieve them), consider the following criteria:

  1. They should be specific (I will pay off $100 of debt monthly versus I will get out of debt)
  2. They should be realistic (I will eat 1-3 servings of fruits/vegetables daily versus I will quit eating meat, dairy, and processed foods)

Overall, I think the best New Year’s resolutions are ones that build upon the things you’ve already been working on, instead of going from zero to hero. Let’s say, worst case scenario, you have ample credit card debt and student loans and nothing in retirement or emergency savings. Instead of tackling all of these in one year – which would overwhelm anyone – try tackling just one of them. “In 2015, I will begin contributing 11% of my paychecks to my 401k” or “In 2015, I will put aside $300 monthly into emergency savings.” Then in 2016, build upon the progress you made by further increasing your retirement contribution, saving for another goal, or aggressively tackling student loans.

I personally have five financial goals for 2015, although I don’t expect anyone to create that many! Two of mine are below:

  • I will increase my 401k contribution to 12% in March
  • I will increase my 401k contribution to 18% for my 30th birthday (quite the gift, I know)

Whatever yours may be, feel free to share them and party with me next December when we’ve accomplished them!

 

The Easiest Retirement Calculator Ever.

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I’m going to be completely transparent here: I did not do the best job saving for retirement in my 20’s. Or even a good job, for that matter. I did an okay job when I was 24/25, but then took like a 4-year hiatus. (My brother-in-law, an actuary, is probably reading this and dying).

Although some of my reasons are legitimate, others are excuses. Yes, I was broke, struggling, and battling credit card debt. But I could’ve done better. Lived below my means. Saved more.

I’m not going to be too hard on myself though. I’ve mentioned it before, but I think it’s crazy that society expects 20-something year-old’s to be so self-disciplined while figuring out their careers, life, love. I certainly don’t judge anyone for the financial decisions they made or didn’t make in their 20’s.

But, for anyone who needs to “make up” for lost time or who just wants to do a retirement “check-up”, the CNN Retirement Calculator is the best of the best. Forget about plugging in a whole bunch of information that just ends up confusing you more. All this calculator asks is your current age, your desired retirement age, the amount you’ve saved so far, your current income, and the percentage rate at which you’re saving. In just a few wonderful clicks, the calculator does the math for you and tells you whether you’re “falling short” or “on the right track.”

For me, as you’ve probably guessed, it was “falling short.” Worse, according to the calculator, I need to consistently save 18% of my salary beginning now until I retire. 18 percent! I was shocked when I found this out, but I’ve since recovered and accepted it.

Remember, since retirement contributions are pre-tax, saving for retirement really isn’t as hard on your paycheck as you might think.

CNN Retirement Calculator

So go ahead, give it a try! Play around with the “Savings Rate” slide at the bottom to see where you’re at, retirement-wise. Then, make adjustments. That’s the most important part: make the adjustments.

Yes, there are a lot of factors involved: The calculator assumes you’ll live to age 92 (you could live longer) and that you’ll live comfortably off 85% of your pre-retirement income. But if you’re like me and math gives you a headache, this is a great, simple way to track your progress.

And who doesn’t love more simplicity when it comes to finance?!

 

How Many Savings Accounts Do You Have?

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I recently learned that my bank allows me to open an unlimited number of savings accounts and give each one a nickname! (Which has made saving way more fun and effective).

  • Emergency Fund? Check.
  • Fairy-tale Wedding? Yes, please.
  • New Bedding Collection? Sure.
  • Holiday Gifts? Check.
  • Travel? Definitely.

There are literally dozens of things you can save for separately—a down payment for a home, car insurance, new furniture—and doing so really does “stretch” your money farther.

However, before you open 6+ accounts like me… a few things to consider:

Fees:

Some banks charge fees if you don’t meet certain deposit requirements and/or if you exceed withdrawal limits. For example, my bank will charge me $5.00 per savings account if I don’t make monthly deposits of $25.00 and if I make more than three withdrawals. So it’s important to make sure you can meet these types of requirements before opening multiple accounts. This is a good thing though! It encourages you to keep making deposits and not take money out.

Investing:

Having multiple savings accounts is great if you’re just starting out or you’re trying to meet short-term goals, like saving for 2015 holiday gifts. But if you’re doing really well and saving a lot (which I hope you are), you should explore investing because that’s where you’re really going to see a return. For more information on that stay tuned, or check out this article.

Noteworthy:

Please, please, please keep in mind that mass savings doesn’t occur overnight. No one wakes up one day with 3-6 months’ worth of salary in an emergency fund, so don’t get frustrated and don’t put off starting. The whole point of saving is to put aside a little now for more later. If it takes you months or even years to reach your goal, that’s great! In fact, that’s perfectly normal.

So if you’re reading this, trust me, open up a few savings accounts and give each one its own goal. You’re going to get great at budgeting, and you might even enjoy it! After all, who doesn’t love to watch their money grow?

 

Food for Thought

Did you know that some “award-winning” financial planners recommend you put aside 5% of your paycheck on clothing? (Read more here). It sounds great at first, but when you do the math, you realize – that’s a pretty big chunk of cash! I sure wish I could do this. I put aside a little for clothing, but definitely not 5%. It seems like other things in life get in the way – in the form of oil changes, doctor’s appointments, emergency savings, food….

Maybe I’ll make more of an effort to do this now that the “experts” have recommended it. Though I’m sure it depends on many factors.

What do you think? Are you surprised by this? Is this something you already do? Would you try it?

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