Let’s Become Financially Fit for 2019

Jen and I were asked a few months back to develop a financial educational radio show on WXTK 95. The show airs at 5PM every Saturday and has become quite popular both here on the Cape and in Southeastern Massachusetts. So, this week I would like to spend our time together discussing what became a very hot segment of our show a few weeks back about Financial New Year’s Resolutions.

I know recently we touched upon the importance of budgeting as a New Year’s Resolution but when we were asked to talk about it on the show, I realized there was much more to discuss. So, over Christmas and New Year’s, I started to outline the radio show.

You see, over Christmas and New Year’s break, it is a quiet time both at work and at home. While Jill and the kids are preoccupied binge watching their “Hallmark” movies, I sneak to the third floor of our house to accomplish some of my best undisturbed reading of the year. I started to look for more information on New Year’s Resolutions and I came across an article listing off the most popular New Year’s resolution for 2018 and it was, no surprise, physical fitness. It was also, no surprise, the most commonly broken resolution.

What I have found over the years is that resolutions are rarely successful. Why? Because positive change is made by habit, not by resolutions. It’s not something that can be decided at the beginning of the year. It’s something that must be acted upon at the beginning, middle, and end of every day. But we can’t help but get caught up in the January first traditions. By no means am I aiming to eradicate resolutions for 2019, but rather I hope to refocus them, to your financial health.

Have you ever been to a gym in the first few weeks of the New Year? There isn’t an empty exercise machine as far as the eye can see. My hope is that the offices of financial advisors across the country are just as packed.

But, just as signing up for that gym membership is simply a step in the right direction, your financial health doesn’t transform with an initial appointment. You need to commit to healthy habits throughout the year, but there are a few simple, and powerful places to start.

As we have said before but it is worth repeating, the first financial resolution is to create a budget. You must follow the money. A budget is your financial blueprint. It is at the heart of every successful financial system. Of the hundreds of folks we help each year, I must say, the more successful ones financially all have a budget.

Don’t make it more complicated than it has to be. Use a spreadsheet or online tools to begin tracking your income and expenses. In our expense section, the first line item must be to pay our selves first. I see it all the time. I ask the question all the time to folks, “How much are you saving?” What I often hear is, “Well, we put away everything extra we have at the end of the month.” This year make saving for your future a forethought and not an afterthought. If you set aside a specific amount each month before you start allocating for other more discretionary expenses, you have begun a very difficult process of building your financial future.

When creating your budget, you also should take a look at your bigger financial picture to project what your year will look like. Will you be purchasing a new car in the coming months? Maybe this summer is the one when you finally buy that boat you’ve been dreaming of. Or, like Jill and I, your kid is a senior and you know the cost of college will come around in the Fall. It’s these big expenses that can easily throw off a plan, so make sure you work them into the fabric of your financial canvas.

A budget allows us to prepare for the expected. But, what about the unexpected? Nothing will throw a budget into a financial tailspin more than an emergency. Emergency funds are like spare tires: you never think about them until you need one. The situations that could arise causing a need for extra money are almost endless: divorce, healthcare, car troubles, emergency travel, job loss; the list goes on. How much should you have saved? The bare minimum in your emergency fund should be able to cover three months of household expenses.

Another resolution is to deal with your debt. Debt is neither inherently good nor bad—it is simply a tool. For most people, some level of debt is a practical necessity. That said, problems arise when debt becomes the master of the borrower, not the other way around. Put yourself in control by first keeping your total debt manageable. Don’t confuse what you can borrow with what you should borrow.

Secondly, eliminate high cost, nondeductible consumer debt. Try to pay off credit card debt and avoid borrowing to buy depreciating assets, such as cars and boats. Lastly, match repayment terms to your time horizon. If you expect to move from your home within five to seven years, you may consider an adjustable rate mortgage that should give you a lower payment over a fixed rate. This is an option as long as you can live with upward mortgage payment resets if your plans change. But don’t borrow assuming your home will automatically increase in value. Historically, long-term home appreciation has significantly lagged the total return of a well implemented investment portfolio.

A resolution that is often overlooked is implementing a sound investment strategy. I find that while many folks desire a sound strategy, they lack in understanding the questions to ask to implement one.

So here are some questions to ask for 2019. Have I back-tested my strategy to see how it behaves through a market cycle? A market cycle is historically five to seven years. Do I have a downside risk mitigation system in place? What is it? What are my downside risk triggers? Do I have any? What is my appetite for risk? Is it quantified? How did my strategy behave in down years such as 2008? Was it acceptable? How did it behave since October of last year? Did you just hold on and hope?

Folks, this is not the time to simply set and forget your financial strategy. Getting answers to these questions will put you on the right track to a sound investment strategy. And make sure these answers fit into your financial objectives.

The last financial resolution that will round out your financial health is estate planning. Do you have your will and other estate documents in place? Are there any changes that need to be made within it? Were there any tax law changes that require you to make any adjustments? While you cannot set it and forget it investment plan, neither should your estate plan.

Folks, take action and make 2019 your year to become financially fit. My resolution for 2019 is to continue to help the Cutter Family Finance faithful to be vigilant and to stay alert, because you deserve more!

Have a great week!

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 jeff@cutterfinancialgroup.com.

Cutter Financial Group LLC (“Cutter Financial”) is a SEC Registered Investment Advisor.

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