Financial Resolutions for the New Year

Financial Resolutions

for the New Year BY » Peter Eisenhauer

Is financial planning on your list of New Years resolutions? Along with health and general well-being, money matters are among the most common areas for people to take a look at as they put up the new year’s calendar and start getting used to the new date as they are writing out checks.

“I think that there is a fair amount of people out there that look at the New Year as a reset and if there are things that they’d like to do and/or improve and they missed the mark in the past year, they look at the New Year as somewhat of a catalyst or greenlight to make those changes or to just start heading in the right direction,” says David Hedges, of Bookman Bright, Inc., in Davidson.

A recent study bears this out — in fact, according to the Fidelity Investment’s most recent annual Financial Resolutions study, 68% of Americans say they are considering a financial resolution for the New Year. The number is up from last year. Fidelity’s survey finds people guardedly optimistic and more inclined to make plans for the future. Despite continued uncertainties around Covid-19, the study found that in 2021 that 71% of those surveyed who were able to stick with a financial resolution, as compared to just 58% in 2020.

“The country has been through a seemingly unrelenting roller coaster over the past two years, so it’s encouraging to see people feeling more hopeful about the coming year and placing a priority on themselves,” said Stacey Watson, senior vice president of Life Event Planning, Fidelity Investments. “This study confirms that actions taken at the start of the pandemic – such as budgeting better and replenishing that emergency savings fund – are becoming permanent habits for many. Americans are connecting their new perspective on well-being to the way they approach their finances, and as a result, becoming more thoughtful about saving and spending.”

Part of the new perspective is that many people have absorbed the advice to make their goals actionable and realistic.

“First and foremost, start small,” says

Hedges. “You want to set some low threshold tasks for yourself that you can easily accomplish so you don’t immediately get stuck in the mud. Setting lofty goals is a surefire way of starting down the road of doing nothing.”

So, what are some things you might want to look at if you are turning over a financial new leaf? Fidelity’s survey found the most common ideas are to “save more money,” “pay down debt,” and “spend less money.” Others are looking at ways to make their wealth grow, and to protect it. There are many ways to approach all of these goals. Here are some ideas and tips on where to start:

“One of the first things to do is to take a few minutes to exam your monthly expenses and recurring costs to make sure that what you’re paying for is what you need and want,” says Hedges. He advises to pull out a few months of bank statements and credit card bills to review ongoing expenses. For vital services, like auto or home insurance, or internet services, now might be the time to shop rates and service to confirm that you’re getting the best bang for your buck. You may also find subscriptions, for example, for online services, that you no longer use. Eliminating or reducing monthly expenses is a powerful action, because you do it once, then continue to benefit every month.

So what about paying off that debt? In a recent newsletter, Morgan Stanley notes, “Even if you’re already good about managing debt, consider taking steps to help reduce and consolidate it further. For example, in today’s labor market, if you’ve gotten a raise or found a new, higher-paying job, consider applying the extra income to any balances with high interest rates.”

Morgan Stanley also advises consolidating any remaining debt. This can let you swap the varying interest rates on multiple loans, credit lines or cards for a potentially lower rate on a single loan. Reducing the number of loans you carry also simplifies your financial life and eases money stress.

Many people with savings and investments are pleased with the increase in value over time. But, Hedges says, “Don’t be complacent with your portfolio just because the market has done well. Have someone put their eyeball on it to give it a second look and be mindful of the risk that you’re taking, the types of accounts that you’re using and the various investments that you’re holding. It all matters.”

Other financial professionals emphasize the same point.

“I think one of the biggest things we see is people who are approaching retirement (within 1-5 years) don’t always review their retirement account allocations,” says Derek Bostian, Managing Partner of Two Waters Wealth Management. Bostian, a Certified Financial Planner, explains, “Over time, some assets increase in value and some decrease and therefore can cause an imbalance with risk and how you’d rather your money be invested.”

Bostian says some people are shocked to find that they have 80% of their retirement money in stocks, for example, when they thought they were allocated in a more risk-averse way, such as a 40/60 stock/bond mix. “Taking a few minutes to review how your retirement accounts are invested can be the difference between retiring in the near future or potentially having to push that date off if the market corrects like we saw with so many people in 2008,” says Bostian.

Paying attention to your pay statements is another simple habit you could begin in the New Year. “Another easy thing to do is review how your retirement account contributions are being invested when the money is taken out of your paychecks each pay period so that you can maintain your preferred risk balance in your accounts,” says Bostian.

One other area of financial planning is insurance and managing risk.

“I don’t care if you self-insure or use insurance companies to transfer the risk to but identify your largest financial risks and address them accordingly,” says Hedges.

And it is important to get sound professional advice on financial matters.

“A New Year Calls for new planning. If you don’t have a Comprehensive Holistic Financial Plan or you are not sure if you are on course with your current plan then there is no better time to crack down and get serious with yourself and your future,” says Shauntae Funkhouser, CPRS™, Senior Client Associate at A4 Wealth Advisors in Huntersville. “We recommend having a detailed analysis to address your Investments, Insurance, Taxes, Retirement, and Estate plan. If you already have a plan then you should get a second opinion, and remember, the person who gave you the first opinion can’t give you the second one,” says Funkhouser.

Whether you resolve to make minor financial tweaks or major changes, there is one final encouraging finding in the Fidelity Investment study. Those who made a financial resolution in 2021 are more likely to feel optimistic about the future, and are almost twice as likely to report their financial situation has improved. “It’s amazing that taking the one relatively simple step of setting a goal can help you feel better about the direction you are headed, but this has been proven to be the case time and again,” said Watson.

Happy Financial New Year!