Author: Nick Prigitano
Where does the time go? Another year came, and another year went. Did you stick to all your New Year's resolutions in 2018? If you didn't, you're not alone. But don't get discouraged, you get another chance to stick to your goals in 2019. Often times we find that people set ambitious goals and when they falter a little bit, they give up completely. Well not this year! We believe that small, incremental changes can have a monumental impact on your financial outlook. That's why we created a list of 5 bite sized resolutions that anyone can stick to.
1: For goodness sake, make a budget!
Yuck, budget. Such an ugly word. This is one of the few to dos that always makes it on the list, but never gets to done. In all seriousness though, making a budget is one of the best things you can do for your financial health. How can you make changes to your spending, or plan for future expenditures if you don't know where your money is going now? We've come a long way from the ancient times of pulling up an Excel document and meticulously entering in each receipt crammed in your wallet. If you're into the extra work, that's cool, but like most things these days, there's an app for that. Two of the more popular tools are Mint and You Need A Budget. Another option is EveryDollar. What's nice about these apps is that they take much of the effort out of manually entering your expenses. You simply link your credit or debit card to the app and it will track and categorize expenses for you. Obviously if you pay with cash the app won't automatically track it. But, if you're feeling extra ambitious, there is a place to manually add those expenses as well. Check off this resolution on January 1st and get that budget in order right away.
2: Save just a little bit more
As financial planners we are constantly beating the drum of "you need to save more for retirement." We get that it's hard to stay motivated to save when retirement seems so far away. Many of us tell ourselves that we'll save more next month, but few actually end up doing it. But do you think you could save 1% more? Start the year off right and build some savings momentum by starting small. Whatever you saved per paycheck last year increase that amount by 1%. If you took home $1,000 a week, that's only $10 a paycheck. That's like cutting out a couple coffees a week, or not going out to lunch for a day. Those small savings add up fast, and the best thing to do is get started. Many 401(k) plans have an option to automatically increase your savings by 1% per year. This takes all the thought out of trying to save just a little bit more. In 2019 increase your savings by 1% and maybe you'll find that you don't miss it all that much.
3: Think about death . . . Just for a moment
We all care about our families and don't want to think about what would happen if we die. It's all too common that people don't make arrangements and when the unfortunate happens there is no plan for their wishes. That's why this year you're going to get a Will and name beneficiaries on your retirement and savings accounts. There's more to a complete estate plan than just a Will. You have Power of Attorneys, Health Care Proxies, HIPPA Releases, Living Wills, and maybe even a trust. But we're going to start small and begin at the basics and name beneficiaries and get a Will in 2019. Naming beneficiaries outlines your wishes if you were to die, and creating a Will accounts for anything you forgot to put a beneficiary on. This way you are dictating how your assets are to be divided up. If you haven’t name beneficiaries, your loved ones will have to go through probate (even Wills have to be probated, which is why naming beneficiaries is so important). Probate can be expensive, time consuming, and (without a Will) the courts decide how your assets are split. The last thing you'll want your loved ones to go through are court proceedings after your gone. If you have minor children a Will can also provide guardians to take care of your kids, so that the state isn't choosing that for you. Do them, and yourself, a favor and at the bare minimum name beneficiaries on all your accounts and draw up a Will in 2019.
4: While you're at it, review your life insurance too
While we're on the topic of death, now seems like a good time to bring up reviewing your life insurance too (or getting some if you don't have any). If you're the primary breadwinner of the family what would they do if you weren't around? Life insurance is a key component of protecting your loved ones when you can't provide for them anymore. Make sure you're covered so that they receive something if you're gone before your time. As financial planners we generally recommend using term life insurance because it is less expensive than whole life and most people don't need insurance for their entire lives. If you're already retired and no longer earning an income, you probably don't need insurance on yourself because no one is depending on you to provide for them. If you don't have any insurance, or don't have enough, go out and get some quotes or speak with a financial advisor about how much you might need. Keep in mind that the younger and healthier you are, the cheaper the premiums will be. We usually suggest level term policies for that reason. Note that group life insurance through your employer is usually renewable term, which means the premium increases as you age and is often unaffordable by the time you are 45. If you need the coverage, buy a 20- or 30- year level term life insurance policy while you are young!
5: Fees are no fun
When was the last time you checked your investments in your 401(k) plan? Did your company add some new funds this year? One of the potentially biggest drags on your long-term investment returns are the expenses paid on the investments. I'm sure many of you have heard about active vs. passive mutual funds, but do you know the difference? An active fund is trying to beat their benchmark by deliberately trading and picking individual stocks. This increases fees on the fund due to the extra trading that must be done along with the additional research and "expertise" you get from the fund managers themselves. However, often times, any “extra” performance is due to investing in a different asset class than the benchmark, not stock picking skill. A passive fund is generally going to track the category for that asset class. While you won't do better than the category, you won't be doing any worse either. Since the fund isn't buying and selling actively, or spending money on research, the fees on the fund are lower. As financial advisors we generally recommend using passive funds because it's almost impossible to consistently pick the best stocks. So save your hard earned money and check the fees on your funds this year.
The beginning of a new year is an exciting time. It's a fresh start to get yourself on track in the coming year. In 2019 let's all work toward getting our financial lives in order one little piece at a time. A great place to start is checking these 5 items off your list. Once these are done we hope it will build momentum to accomplish even bigger tasks down the road. Good luck, and Happy New Year!