Financial Planning Resolutions That Only Take Minutes
Not all financial New Year’s resolutions are long, involved slogs. Some can be completed in just a few minutes.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter
Procrastination is a uniquely insidious trait in many humans, at least as it relates to the rest of the wild kingdom. While I could certainly attest to my cat being lazy, most creatures of the wild recognize waiting for tomorrow to be the difference between surviving and starving. So, we resort to New Year’s resolutions as a way of committing to self-improvement.
Many of the usual resolutions are easy to commit to, but challenging to adhere to. Whether it be diet, exercise or smoking cessation, Jan. 1 is just one day. Sticking to it for another 364 is the real challenge.
In the face of the unprecedented uncertainty and unexpected financial strain that many have contended with in 2020, setting financial planning resolutions for 2021 may seem daunting – but even small steps can keep you moving in the right direction. Here are a few tips to get it right:
Subscribe to Kiplinger’s Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Take inventory once per year. This takes 10-45 minutes, and don't over-engineer it. Write down your assets (things you OWN) in one column and liabilities (debts you OWE) in another. Assets will include savings accounts, retirement accounts, real estate, car(s), etc. Liabilities will be credit cards, mortgage, student loans, etc. Attach approximate values to each. If you are a spreadsheet-type of person, all the better, but a piece of paper works fine too. Once done, you've created a household balance sheet. It’s a start!
- Resolve to make the simple step of increasing your retirement plan contribution by 1%-2%. This takes only two minutes per year and can be quite potent in strengthening your retirement plan. Do the math – if you make $70,000 per year and get paid every two weeks, increasing your retirement plan contribution by 1% only subtracts a mere $26 per paycheck. This is the single most powerful way to assure that come age 65, you don't look around and say: "What just happened?"
- Evaluate the risk you have in your investment accounts. This is also quick – only five to 30 minutes each year – but a must do. If you are young, you can embrace more risk, and as you age, slowly back off on risk. This can also get a little tricky, and you should lean on a financial adviser who’s educated in the risk/reward tradeoffs of investments to get the most accurate assessment.
- Evaluate your expenses. This one may be the most painful, but it can also be eye-opening and fruitful. Plan to sit down for 60 to 90 minutes every few years and track EVERY expense that you have for a three- to six-month period. Everyone will find themselves asking the proverbial "why?" on at least a few parts of that list and identifying ways to cut down. When you reduce expenses, even if it’s $25 per month, you MUST APPLY these savings to your retirement plan and/or debt reduction. If you don't, you risk starting the same cycle all over again.
These resolutions are simple, but they can pack a powerful punch. Here’s two true stories of many I’ve seen as an adviser that demonstrate just how impactful these goals can be.
The first is a client I first met five years ago when she was 25. She was starting her adult life after struggling with a multitude of significant challenges. We discussed the need for an emergency fund, and she got it done. We reviewed the need for life insurance when she became pregnant. She and I fought through the underwriting challenges with various carriers, and finally got that done too. I said she should start a Roth IRA, and she did it with a mere $50 per month. When she had to pull back on savings due to unexpected circumstances, she moved the dial back when circumstances improved. The list goes on and on. She TOOK ACTION, and continues to do so. In 35 years, she will look back and marvel at what she has accomplished.
I have another client who is 53 and had to take a pay cut in the COVID-19 crisis. For the first time in 30 years, she was saving nothing, and it was extremely disconcerting to her. She expected me to share the angst, and to her surprise, I didn’t. She had spent the last three decades being rigorous and disciplined, and she had built a retirement portfolio of $1.15 million, despite the fact that she had never made more than $70,000 per year. There was no inheritance. No lottery. This was all her doing. I explained her portfolio is likely to grow to $2 million come age 65 even if she doesn't add another dollar (assume a 5% return). Because this portfolio is so strong – even in a time of uncertainty – we’re now in a position to consider early retirement for her.
These two "stories" are real people. One will get it done. The other has already done so. They’ve taken just a few minutes each year to take inventory, evaluate risk, protect the family, and make baby steps that lead to long-term success. So, this Jan. 1, remind yourself financial planning is the easy resolution. Just don't put it off to next year!
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Jamie Letcher is a Financial Adviser with LPL Financial, located at Summit Credit Union (opens in new tab) in Madison, Wis. Summit Credit Union is a $5 billion CU serving 176,000 members. Letcher helps members work toward achieving their financial goals and through a process that begins with a “get-to-know-you” meeting and ends with a collaborative plan, complete with action steps. He is a member of FINRA/SIPC, a registered broker-dealer and investment adviser.
Stock Market Today: Stocks Close Higher in Volatile Session
The major indexes spent most of Thursday in rally mode, but selling pressure emerged in afternoon trading.
By Karee Venema • Published
Federal Electric Bike Tax Credit Would Offer up to $1,500
Lawmakers have proposed a bigger version of an e-bike bill that would provide a tax credit of up to $1,500 on some new electric bikes.
By Kelley R. Taylor • Published
3% Mortgage Rates: Gift of a Lifetime or Low-Rate House Arrest?
A homeowner planning to relocate or downsize might find the higher costs related to higher mortgage rates too much of a hurdle to clear. What are their options?
By Adam Jordan, CIMA®, AAMS® • Published
I Wish I May, I Wish I Might: Estate Planning’s Gentle Nudge
Contrary to what you might expect, using precatory language such as ‘I wish’ or ‘I hope’ can play an important part in three estate planning objectives.
By Allison L. Lee, Esq. • Published
Donor-Advised Funds: A Tax-Savvy Way to Rebalance Your Portfolio
Long-term investors who embrace charitable giving can easily save on capital gains taxes by donating shares when it’s time to get their portfolio back in balance.
By Adam Nash • Published
Five Investment Strategies to Focus on in 2023
Planning instead of predicting, reducing allocations of illiquid assets and having a diversified portfolio are good ways for investors to play defense this year.
By Don Calcagni, CFP® • Published
Investors Nearing Retirement Show Patience With Markets
Despite last year’s upheaval, many investors are sticking with long-term plans and tightening their budgets instead of moving money out of stocks and bonds.
By Matthew Sommer, Ph.D. CFA® • Published
Long-Term Care Planning vs. Taxes: Finding a Healthy Balance
Many families discover that trying to mitigate the cost of long-term care can conflict with another common retirement concern — reducing taxes for retirees and their heirs.
By John M. Graves, Esq., IAR, Agent • Published
For a Concentrated Stock Position, Ask Your Adviser This
There can be advantages to having a lot of stock in one company, but ‘de-risking’ can help avoid some significant disadvantages.
By Robert Gorman • Published
Trusting Fintech: Four Critical Moves to Protect Yourself
A few relatively easy steps can help you safeguard your money when using bank and budgeting apps and other financial technology.
By Shane W. Cummings, CFP®, AIF® • Published