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Hi, Team! Today, we’re fortunate to have Jon (yes, this Jon) here to talk about worthwhile financial resolutions that will actually make a difference for the new year.
What are Jon’s qualifications? Well, he and his wife paid off close to $89,000 in student loans in about 16 months. These two are living examples of what good, worthwhile goals can lead to.
Consistent readers are probably familiar with the story, if that’s not you, feel free to check out the link above. Either way, thanks for being here!
1) Learn where your money is going (and how to control it).
As good as my wife and I try to be with our money, there have been times when I have opened the credit card statement at the end of the month, saw the total purchases, and was left wondering, “what in the world did I spend $1,200 on this month?”
It could very well be that the vast majority of spending we did over that month was necessary—but it’s impossible to know for sure unless we are paying attention.
It is very difficult to learn to reallocate your money to the important things on the rest of this list if you do not first understand where your money is going. While it doesn’t sound fun, hands-down, the best way to learn where your money is going is by creating a budget and keeping track of your spending as the month goes on.
The most effective way I have found to do this is with EveryDollar.
This website (with accompanying free app) allows you to create budgets each month and track spending by manually adding purchases throughout the month. While having to enter in purchases manually every time you shop sounds cumbersome, it really allows you to be aware of how you are pacing your spending through the month to avoid that statement sticker shock.
I have found Mint to be useful as well, but the fact that I can ignore it for months on end makes it a little too easy to be effective for me.
2) Give $____________.
This year, a member of our family suggested a few of us join our money in support of an organization called Healing Hearts Vietnam. This organization was co-founded by my brother, and giving to it would allow us to pay for life-saving heart surgeries for 1 or 2 children in Vietnam whose family could not afford it.
While our portion of the funding collected wasn’t much, when combined with the giving of others, it’s literally saving lives.
If you’re reading this (Mike and I would like to thank you for that – by the way), you are blessed, and giving is a great way to share those blessings with others. Once you’ve started to understand where your money is going you can find expenses in your budget to cut, allowing you to give some of that money.
Not only does giving bless others, but it also helps you appreciate the things that weren’t cut out of the budget.
3) Pay off $____________ in debt.
Heather and I have saved $6,000 in debt interest alone in 2017 (and the year hasn’t even started yet). We did this by paying off our student loans early.
While we had to bite the bullet up front, for every dollar we paid early we avoided paying an additional 35 cents in interest over the next 10 years. In total this added up to around $30,000 saved.
While paying minimum payments on your student loan, car loan, or credit card is the least painful option in the short term, it’s slowing you down—if not killing you—financially.
It took us 16 months to pay off all of our loans, so don’t overwhelm yourself. Depending on your debt-to-income ratio, you may not be able to pay off all your loans in the next 12 months (or even this decade…). Just know that you are better off for every extra dollar you can put towards loan principle.
As Mike pointed out in his recent post, not all loans are created equally. While your goal should be to get rid of all of it (eventually), prioritizing the highest interest rate loans first will get you the biggest savings.
4) Save $____________ for retirement.
Over the 12 months before I started putting money into my retirement fund, the specific allocations I chose to invest in had an aggregate return north of 30%. Yes, of course, the year BEFORE I started to invest.
My excuse for not having invested the year prior was pretty legit—I was making $14/hr and had an engagement ring and honeymoon to save for. Were I to have invested 10% of my income that year, $3,000, at an 8% rate of return until I was 65 (or 42 years), it would be worth right around $76,000. While alone that’s not exactly enough to retire on, it’s not difficult to see how continuing down that path can be dangerous.
When making retirement calculations, assumptions can change a lot.
For example, the difference in the value of $1 invested for 30 years is ~73% greater at a 10% rate of return compared to an 8% return. With that being said, if you assume an 8% return, money you put into retirement this year doubles in ~9 years.
This means that for every dollar you aren’t putting in your retirement now, you will need to put $2 into it in 9 years, or $4 in in 18, or $8 in 26…you get the point…and that’s in addition to what you should already be saving at that point.
Want to know what you should be saving to be on pace to retire when you want?
The tool that I have found to be most useful is the Retirement:IQ. It allows you to pick your own assumptions (rate of return, rate of inflation, how much in today’s dollars you will want to live off of, withdrawal rate, and years to retirement), plug in what you have invested already, and tells you what you should be investing per month. Plugging in your numbers and playing with them a little will help give you a good idea of what dollar amount you should be setting for this goal.
5) Start now, and don’t give up (financial and otherwise)
Last year, my main New Year’s resolution was to exercise at least 3x per week. It went something like this: January 1, I played basketball for ~1 hour. That’s it. After the first week, I realized I only exercised once and decided I had failed to keep my resolution.
When you fall off the wagon, pull yourself back up.
We are still working on our budgeting process, how to be more generous, and figuring out our retirement savings goals and strategy, but to give up just because we don’t work out 3x one week would be missing the point.
Imagine if I had started exercising in December, maybe not even 3x per week, but at least enough to prove it wouldn’t kill me, then made the leap to 3x in January…I imagine I would have been more successful.
If something is worth doing, not only is it worth doing right, but it’s worth starting now.
You are likely reading this in December, but you can and should start your New Year’s resolutions now.
Start looking at how you spend your money and start working on your budget now. It can take some time, especially at first, so putting all that pressure on yourself on Jan. 1 isn’t necessarily the best idea.
Buy an extra little something to give for Christmas this year to get the taste for giving. Take a look at your debts now and start to plan your attack and dream about the days when you won’t be paying so much of your hard earned money out in interest. Ask your employer about your 401k, 403b, or deferred compensation program now.
2016 taught us that a goal and a little hard work go a long way, so set your goals now and make it happen.
Thanks for reading!