3 Financial Resolutions That Don’t Require Heavy Lifting

Monday, January 21st, 2019

By: Peter Vander Ploeg, CFP®

For the 10th year in a row, Fidelity’s “New Year’s Financial Resolution Study” ended with the same top three results.  People are focused on saving more, paying down debt and spending less.  Although the results may not have been surprising given the history of the survey, there weren’t a lot of practical solutions offered to achieve these goals.  Let me be your personal ‘Financial’ trainer. The first session is on me!

Anyone who has had a personal training session knows the first appointment is filled with gathering baseline information.  You must know where you are starting from to make the biggest impact on your situation.  Once your baseline is documented you can set goals and monitor your progress.  With that said, let’s dive into the three results of the study.

Saving More

A great way to establish a baseline is to understand how much you have available to save with a quick budgeting checkup.  Once you know how much you have available, double check your contributions to make sure you are saving enough.   

If you have a 401(k) savings plan at work, check the percentage that you are currently contributing either online or with your HR department.  Don’t worry if are under your goal.  To start saving more, increase your contribution percentage by 1% each year.  Some 401(k) plans can do that for you, but you must turn that feature on.  Aim for a goal of 10-15% of your pay including your company match.  Soon, you’ll be maxing out your savings without a lot of effort!

If you don’t have access to a 401k or a company-sponsored savings plan, look to start your own in 2019.  Accounts like a Solo 401k, SEP IRA or SIMPLE IRA will help you save for retirement and manage your taxes.  Many times, these accounts don’t require a lot of paperwork to open and are free to set up.

For short term goals or if the options above aren’t applicable to your situation, set up a separate savings account where you can set up direct deposit.  Carve off a portion of each check and stay committed to sending money to that account each paycheck. 

Paying Down Debt

There are two methods to attacking debt, but it all starts with a baseline inventory of your situation.  First, list your debts in 2 ways ranked smallest to largest: List 1 by amount owed and list 2 by percentage rate.  Now you can choose from one of the two methods below to pay down your debt.

Snowball:  Use list 1, paying off the smallest debts first.  Start by committing to the minimum payment on each debt and send any additional funds to the debt with the smallest balance.  Once you have paid off the smallest debt, roll that same monthly payment and any available funds to debt number two, and so on, until all the debts are paid off.  This method provides the psychological benefit of seeing results sooner. 1  

Avalanche:  Opt for list 2, paying off the debts from highest interest rate to lowest.  Again, start by committing to the minimum payment on each debt.  This time send any additional funds to the debt with the highest interest rate.  Once you have paid off the debt with the highest interest rate, roll those funds to the next highest interest rate balance, and so on, until all the debts are paid off.  This method is faster, but requires discipline to stick to the plan.  

Spending Less

As a baseline to manage your spending, turn to cash.  Sure, credit card points are nice and having the flexibility to pay with your phone seems revolutionary, but spending cold hard cash has its benefits too.  Using a cash helps you stick to a set amount of money each week for each category in your budget.  You are more likely to avoid overspending and impulse purchases if you know the purpose of the cash in your wallet. 

If the move to cash is too drastic for you.  Consider a budgeting app that makes you categorize each purchase.  At the very least, you will be forced to revisit the purchase for a longer period than the swipe of a card.

Hopefully these tips help monitor your progress and achieve your financial goals in 2019!

1. http://www.kellogg.northwestern.edu/news_articles/2012/snowball-approach.aspx