Over Christmas, I read a recent study published by Principal Financial Services (PFS). According to the study, Americans are taking their New Year’s resolutions about their financial future seriously. In fact, the top five resolutions listed in the study are to save more each month, reduce spending, pay down credit card debt, build an emergency fund, and save more for retirement.
The PFS study also asked survey respondents what their biggest financial blunders were for 2018. Among the top responses were not saving enough, not budgeting correctly, taking on additional debt, spending beyond their means, and accumulating credit card debt.
This brings me to the conclusion that too many of us today are letting our financial lives get away from us by not understanding where our money is going and not making the most efficient use of it when we have it.
You know, I often talk with folks who are confused about how to prioritize their financial life. They have solid goals in mind – usually along the lines of PFS’s survey respondents – but they just don’t know where to start. The responsibilities of family, the need to pay off credit cards and student loans, maintain sufficient resources to pay credit card debt, mortgage, and car payments – at the end of the day, it can be so overwhelming to many of us that the easiest solution is to do nothing. But unless we take action, nothing will change. Action leads to results. But figuring out what to do first can be a challenge.
Some people make and break resolutions on the same day. Creating and following your resolutions requires a desire to change, a determination to take action, and a dedication to see it through. But at the same time, resolutions don’t have to be hard or life-altering. There are ways to make your New Year’s resolutions stick, according to the American Psychological Association (APA).
APA’s first suggestion is to “Start small.” Making small, simple changes are often the best way to affect positive, permanent change in your life. That’s as true for your savings and investments as it is for other aspects of your life.
Frequently, we create excuses for why we can’t achieve the goals we set out for ourselves. Such as waiting for another raise at work or expecting that one’s financial situation will change soon and then one can begin to make headway on saving and investing. Wayne Gretsky once said, “Procrastination is one of the most common and deadliest of diseases and its toll on success and happiness is heavy.”
Let’s not procrastinate. Not now. If you want to save more every month, find ways to do it that don’t require radical lifestyle changes. Use technology to your advantage. Automate your savings, for example, by setting up recurring deductions from your checking account into savings or retirement accounts. Before you know it, you’ll have a significant nest egg set aside for what you need.
As you receive bonuses or salary increases at work, consider redirecting that income into your savings and investments, again using automated banking tools. You’ll be able to maintain your current lifestyle without adjustment while making long-term gains in savings and investment that will pay dividends as you retire.
Reducing spending first requires you to understand exactly where you’re spending money, and that begins with a budget. A budget will help you evaluate where your money is coming from and where it is going. Budgeting is a critical step to building out a solid financial plan.
Again, technology can help. There are many good budgeting tools for your computer and smartphone. Mint, Acorns, You Need a Budget (YNAB), PocketGuard – find one that sports the features and interface you’re most likely to stick with and give it a try. Any of these products will help you see expenses which are non-negotiable (for example, your mortgage or rent payment, food budget, utilities) and which expenses can be reduced.
Budgeting can surprise us when it uncovers how different our expenses are compared to what we thought they were. In some cases, you may discover expenses that you never even knew you had, whether it’s excessive retail spending or eating out, even subscriptions to publications and services you no longer use. That money may be better used elsewhere, to achieve your financial goals.
Aside from any other changes you can make to your financial lifestyle in 2019, saving more for retirement should be at the top of your list. As I recently told Cutter Family Finances readers, 2019 brings some welcome changes to the law which provide individuals with better control over their retirement investments. These, combined with other sensible and reasonable changes to our financial lives, can help all of us plan better for our future.
This includes contribution limit increases to 401(k) and other retirement plans, the first contribution limit increases to IRA accounts in half a decade, and more. Employing these changes and making other modest adjustments to your savings and investment strategy will yield benefits down the road, so make sure to make the most of them.
Folks, focus on changing one behavior at a time. If your financial resolutions span the gamut from saving more to spending less, to paying down debt, and setting aside more for retirement, focus on each task or goal individually rather than trying to make a radical lifestyle change all at once. Make sure that the changes you implement are gradual. I have found over the years that you set yourself up for failure and disappointment if you try to do everything all at once.
Once you have cemented your desire for change, determined to see your changes implemented, and are dedicated to success, talk about your plans with family and trusted friends to help keep yourself accountable for your goals.
View the start of 2019 as an opportunity to set things in motion that will net you positive results for your future. Whether it’s setting aside more for retirement, paying down debt, reducing spending, or whatever your financial goals are for 2019, you can do it. And you can start today.
Be vigilant and stay alert, because you deserve more.
All of us at Cutter Financial Group wish you a happy and healthy New Year!
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, a wealth management firm with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at firstname.lastname@example.org.
Cutter Financial Group LLC (“Cutter Financial”) is a SEC Registered Investment Advisor.
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