Usually, financial New Year’s Resolutions are for people whose finances are, honestly, kind of a mess. If you’re reading this blog, you’re beyond “pay more than the minimum on your credit cards” and “try as hard as you can to save 10%”.
Those are a great place to start. But those are Beginner Resolutions. If you want to keep improving your financial health, at some point you’ll need some Intermediate Resolutions.
If you’re debt-free, already saving a portion of your income, and paying all your bills on time, think about adding one of these to your resolutions for 2016.
- Get an IRA, and fill it. You can actually fund a 2015 IRA until April 15, 2016.If you’re under 50 and make less than $117,000, your annual contribution limit is $5500. A ROTH IRA is a nice option, because you can withdraw your contributions at any time with no penalty (unlike a 401(k)), and when you draw down in retirement, everything is tax-free. Learn more about IRA’s and your different options (I picked a ROTH, but Traditional might be right for you) here.
- Learn about investing. Basically the entire reason the financial adviser industry exists is because people think investing is way harder than it is. Enjoy my rant against financial advisers here. For now, make it a resolution to understand the market yourself. This stock series is a great place to start.
- Understand your insurance. Sometimes, we overpay for insurance (especially on cars) because we don’t understand that there’s a better option. Or because, like me, we’re very confused and too lazy to figure it out. One of my resolutions this year is to get new quotes and lower my car insurance. In some cases (like much pet insurance), it might make more sense to self-insure.
- Up your savings rate by 10 percent. If you read this blog, you almost certainly already save. You should save more. Your savings rate is the amount of money you save/your income (you would be amazed by the number of arguments there are on the internet about whether this is net or gross. Just be consistent. I calculate out of net and add my 401(k) contributions to both sides of the fraction.) Check out this graph or this chart to see how much closer you’d be to financial freedom if you increased your savings rate. You can do this by increasing your income or your savings. Also, debt pay-off counts as savings.
- Track your spending! This should probably be number one, because it’s the most important. Mint can do most of this automatically for you if you link your accounts, and it’s a super useful tool. This year, I plan on using a less automated approach, like the Spendee app, so that I can track things in better detail and also measure my cash spending. Tracking your spending almost always snowballs into making wiser spending choices and saving more.
Bonus resolution: Give back. In 2016, I want to make a more conscious effort to not have a single-minded focus on saving. I’m lucky enough to be able to live comfortably on less than I earn (I posted all my spending for 2015 here) and next year I want to keep my savings rate high while also doing my part to help people who don’t have the opportunities I do. I wrote a post a few months ago about how I reconcile my savings goals with my desire to do good, and this year I’d like to increase my donations, since I was disappointed in retrospect by how low they were in 2015. In fact, I just took a break from writing this post to make a monthly recurring donation to the Arc, an organization that does great work for people with developmental disabilities. I encourage you to do the same, for any organization that you believe in.
What are your financial resolutions for 2016?