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How to Set the Stage for a Decade of Financial Wins

Written by:By this time in January, statistics show that those lofty New Year’s resolutions you announced with such passion on January 1 have already been swept aside to make way for more pressing priorities. You’re not alone. According to U.S. News & World Report, a whopping 80% of New Year’s resolutions fail by February. [1] And while most of us could probably benefit from cutting back on social media, exercising more, or eating a healthier diet, as a Certified Financial Planner (CFP ® ) professional, here is the one resolution I would urge you to make in 2020 (and keep!): kick-start your finances now by checking these four things off your list:

1. Set 4 goals

Do you feel stuck in your financial life? Do you feel like each year flies by with little or no change in your savings or debt? If so, I’m willing to bet you need a game plan. It all starts with setting your goals. Start by asking yourself these 2 questions:

  • Where do I want to be in 1 year, 5 years, and 10 years?
  • What do I want to use my money to accomplish in the next 12 months?
  • Defining your ‘big picture’ goals can make it much easier to identify your short-term goals—and to stay focused on what really matters. It’s a process that made a huge difference in my own life. In the spring of 2018, my wife and I were newly engaged and had just graduated from Indiana State University. We had upcoming wedding expenses, a dream of going to Europe for our honeymoon, and we wanted to become homeowners. That’s when we had our first ‘coffee date’ to create a financial game plan.If that sounds like the worst date ever, it wasn’t! We had fun plotting out our goals, and plotting out how to achieve them became a great project for us both (and we love seeing our progress along the way!). Since we started, we have been able to save enough for a small, intimate wedding and the 20% down payment to purchase our first home. We have even socked away enough for our delayed honeymoon: a 2-week adventure to Paris, Brussels, and Amsterdam. How did we do it? By staying 100% focused on our ‘big picture’ goals. To continue to stay on track, we head to a new coffee house every 6 months to revisit our plan and set new goals as we achieve the old ones.

    2. Create a real budget

    Once you’ve established your goals, it’s time to create a real budget. I know, I know… it’s the ‘b word’ everyone dreads. And much like cutting back on social media, it’s one of those goals that everyone knows they should do, but that very few actually do. But here’s the good news: having a budget isn’t about restricting what you spend—in fact, a budget should help align your values with your dollars. A budget is simply a visual representation of how you’re going to achieve what’s most important to you—in other words, those goals you established above! Here’s how I picture a budget:
  • Start with the savings goals you defined in step 1. These should be at the top of your budget because they are going to bring you the most happiness. Your savings shouldn’t be what’s left over after expenses; your savings should be what starts your budget!
  • Write out your fixed expenses. Think rent, utilities, debt, groceries, and insurance. These come next because they won’t change month to month (and you need these to survive).
  • Subtract your savings goals and fixed expenses from your monthly income.
  • Calculate the remainder, and have fun! Reward yourself for covering your savings goals and fixed expenses. Go shopping, go out to eat, or see a movie.
  • One of the best ways to keep your budget on track is to automate! Set up an automatic transfer from your checking to your savings account. These can include increasing your emergency fund, saving for your IRA and Roth IRA, saving for a travel experience, and more. And to create consistency about where your dollars are going, I suggest using a budgeting app like Mint, YNAB, or EveryDollar. Whichever app you choose, avoid the temptation to create a zillion categories—that will only make the process more daunting. Keep it simple and stay focused on the most important thing: your goals.

    3. Take advantage of free money

    Yes, you read that right. Free money. And I promise that there’s a lot to be had once you start looking in the right places. The first place to look: your retirement benefits. Does your employer offer a 401(k) match? Take it. Do you have access to a Health Savings Account (HSA) and the annual employer contribution that often comes with it? Take it. (For more on the power of HSAs, check out Aaron Williams’ blog post on the topic here.)Next, set your eyes on a high-yield savings account. While brick-and-mortar financial institutions (i.e., the bank around the corner) typically offer less than a percent in interest, online banks offer up to double the standard interest rate. That means you’ll be earning twice the interest on your short-term savings for things like your savings goals and that all-important emergency fund. To get started, check out this summary of the best high-yield online savings accounts as of January 2020, according to NerdWallet.Lastly, open a cash-back credit card that matches your lifestyle. This is particularly great if you’ve already mastered your cash flow and minimized your rolling debt. Personally, my wife and I save up our cash-back rewards to help fund all of those extra expenses around the holidays, but you may want to earmark your rewards for any one of your goals. Here’s a great roundup of some of the top cash-back credit cards today.

    4. Start tracking your net worth

    If you’re like most people, you’re not exactly sure whether you’re in a good financial position—or not. But without a clear picture of where you are today and where you hope to be in the future, improving your financial life is a lot like throwing darts in the dark! Here’s a better approach:
  • Calculate your net worth by listing what you own (your assets), and then subtracting what you owe (your debts).
  • Redo the math every 6 months to track your progress.
  • This is the absolute best way to see how quickly you are achieving your short- and long-term goals. Whether your net worth is negative (meaning you owe more than you own) or positive (meaning you own more than you owe), it feels really great to see your net worth improve over time. Remember, what gets tracked gets managed.One word of caution: beware of online articles telling you what your net worth ‘should’ be at a certain age. Everyone’s situation is different, and everyone’s goals are unique. If you’re not sure if you’re on track, talk to your financial advisor.Keeping New Year’s resolutions is no piece of cake, but I promise that by taking action now—no matter what your age, income, or financial situation—you can boost your financial confidence and set the stage for a decade of financial wins. Make your ‘coffee date’ and make it happen! And if you need guidance along the way, please reach out. Our team is always here to help.[1] Why 80 Percent of New Year's Resolutions Fail, U.S. News & World Report, December 2015

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