What if I told you that you could immediately accomplish a New Year’s resolution that most people fail at, all before January even comes to a close?
You can, and it won’t be that painful or time-consuming; I promise.
In “10 Top New Year’s Resolutions for Success and Happiness in 2019”, Peter Economy cites “saving more money” as one of the most popular goals people have. Overall only 8% of people making resolutions succeed, and those seeking to improve their money situation have a higher rate of failure. Ouch.
Before you throw up your hands and decide it’s not worth trying to save more, let’s look at some ways you can defy the odds.
Often, people tell me they have no idea where their statements are. Good news. With year-end out of the way, statements will be arriving and will clearly show you what you have and how much you added to the account over the course of 2018. This is your baseline on which you will improve.
Armed with this information, you can quickly assess the situation and make some changes today in 3 easy steps:
1. Look at your individual retirement accounts. How much did you put away?
- You have until April 15, 2019 to make a contribution for 2018 (this is a rare opportunity to right a wrong from 2018).
- For 2018, the maximum you can put into an IRA or Roth IRA is $5,500 or $6,500 once you are age 50 or older; for 2019, these amounts are higher – $6,000 and $7,000, respectively.
- For 2019, consider setting up a systematic investment program where a set amount gets invested every month right from your bank account.
Resolve to set yourself up for success by making a 2018 contribution and by using an automated system for investing in 2019, so you commit to monthly investments. Set it and forget it.
2. Now, take a look at your investments.
- Do not panic if your investments are lower than when 2018 started. The market has been volatile. On the upside, a down market means prices are lower, so your fixed monthly investments will buy more shares.
- Do check what you are paying for your investments since excessive fees are always bad, but particularly devastating when market returns are nowhere to be found. Check your fund expenses with FINRA’s fund analyzer.
- As a point of reference, look at what your fund expenses could be if you were in a low-cost option, like Vanguard funds. Simply swapping out an expensive investment for a lower-cost option can make you money regardless of what the market returns. Which would you rather own: a fund with a 5% sales load and fund fees of 1% or a no-load fund with expenses of 0.2%? No, this is not a trick question. The gaps in fees can be that wide.
Resolve to look at a down market as a long-term investor’s best friend because it encourages you to stick with your investment plan.
Resolve to not throw good money after bad; money is always better in your pocket than in someone else’s. Cut your fees to the bone.
3. Look at your year-end pay stub.
- Did you contribute to your employer-sponsored retirement plan? Did you get a match from your employer? The benefits/payroll department will know what you need to contribute to get the match. With or without a match, increasing your participation by as little as 1% is still an improvement.
- For 2019, the maximum you can put into a 401(k), 457 or 403(b) is $19,000 or $25,000 if you are 50 or older. For Simple IRA plans, the maximums are $13,000 or $16,000, respectively.
- You may be surprised to find that increasing your contributions to your retirement plan may not materially affect your take-home-pay, because it lowers your taxable income; your payroll department should be able to offer some guidance. Here is a basic calculator to give you an idea.
Resolve to get involved in your employer-sponsored plan, get the match or increase your savings rate per paycheck.
Recently a client met with the payroll coordinator and she was shocked to discover that putting in $800 a month reduced her bi-monthly paycheck by just $50! This would not affect her monthly budget one iota and yet it made a huge difference in her goal to save more money.
I’ve only scratched the surface. There are many more elements to successfully handling your money, such as building a plan that reflects your goals/time frame and diversifying your investments appropriately.
But just developing the habit of putting money aside – and accomplishing that goal right away – may be the momentum you need to move the needle in the right direction and keep going.
Make 2019 the year you resolve to beat the odds. I’m rooting for you.
Source: “10 Top New Year’s Resolutions for Success and Happiness in 2019”, Peter Economy, Inc.com, January 1, 2019.