Financial Resolutions for 2019

Okay, 2019 is here, which means it’s time to jump into those financial resolutions.

Sadly, the majority of budgets or New Year’s resolutions fall by the wayside within months of making them, as life interrupts our best-laid intentions. Part of the reason is that we sometimes make the whole process more onerous than necessary.

Budgeting should not be an end, but the means by which we can accomplish our financial goals. Of course that fact means that you need to start by establishing those goals. If you can’t come up with your own, try these (in order):

1. Pay down consumer (credit card balances or auto loans) and student debt

2. Establish an emergency reserve fund of six to twelve months of living expenses

3. Maximize retirement savings (the 2019 limit for 401k, 403b and 457 plans is $19,000 or $25,000 if you’re over 50; the limit for Traditional or Roth IRAs is $6,000; $7,000 for those over age 50.)

4. Fund a 529-education fund

5. Establish a general investment account to fund anything from a second home to an accelerated path to retirement

You will notice that goal number two specifically requires an important piece of information: knowing how much you spend each month. This is where the dreaded budget enters the conversation. That said, most financial goals require that you start with how much you spend today and what portion of that spending can be redirected towards saving and investing to fund the goals.

Instead of making yourself crazy populating a bunch of categories, it’s far easier to start with what you are currently spending. With the advent of easy to use technology, this once-horrible and time-consuming activity is a snap. Apps like Mint, You Need a Budget, Clarity Money or even your bank’s own technology can help you with the process. Keep track for ninety days, that’s it, just three months to pour the financial foundation necessary to construct our dream house.

Once you know how much you spend on a monthly basis for ongoing needs, you will have to add some of the one-time expenses that arise throughout the year, including vacations; money for kids’ extra-curricular activities or camps; or the annual “homeowner’s surprise,” like the unanticipated appliance melt-down.

Congratulations, you have completed most of the hard work! The next step is to review where the money is going and determine how much you can redirect towards your goals. Again, technology will be your friend. Use it to create automatic drafts to avoid late payments and accelerate the pay down of loans; to establish similar drafts with your bank or brokerage firm to beef up your emergency reserve fund; and to slowly increase your contribution levels to your retirement plan with auto-escalation features available at many financial institutions.

Psychologists note that change requires new thinking. Instead of hyper-focusing on the budget itself, remind yourself why you are doing what you are doing...these goals are YOUR goals, what you are trying to accomplish. Don’t forget to celebrate the small wins and if you fall off the wagon, re-focus your efforts, be mindful and get back on track.

Have a money question? Email me here.

Financial Thanksgiving 2015

Thanksgiving is a time when we count our blessings. In addition to the big stuff, I like to use the opportunity to give thanks to the resources and organizations that improve our financial lives. The Financial Planning Coalition, a collaboration of the Certified Financial Planner Board of Standards (CFP Board), the Financial Planning Association (FPA), and the National Association of Personal Financial Advisors (NAPFA) has provided a strong and unified voice promoting the recognition and regulation of financial planners and increased investor protection. The big task that the Coalition has been trying to tackle is to educate policymakers and consumers about the importance of advice that is in the best interest of the client—the so-called fiduciary standard.

The coalition’s tireless efforts may soon pay off…next on my list of thanks goes to the United States Department of Labor, which is expected to finalize rules that would require financial advisors of all retirement accounts to put customers first. Although the industry has fought hard to thwart the initiative, most believe that it will survive. Its enactment would amount to the biggest changes to the Employee Retirement Income Security Act (ERISA) since that law was drafted more than 40 years ago.

Thanks too must go to technology, which has greatly enhanced the ability to better manage personal finances. Mint, You Need A Budget (YNAB) are among the many free apps that help you keep track of your money, while Acorns and Level Money help you budget and then find even the smallest dollars that you can save or invest.

And a tip of the hat goes to the innovators of financial technology, like the folks at Betterment, Wealthfront, Motif investing and MarketRiders, who have introduced a cost efficient way for investors to better allocate and manage their investments and retirement accounts.

There are also plenty of terrific tools available to help people with their financial lives. The EBRI Choose to Save Ballpark Estimate is an easy to use calculator to help quantify retirement savings needs, FinAid is the go-to site for students and their families to help understand the various ways to pay for college; and LifeHappens helps families understand their life and disability insurance needs.

I am often asked about which financial blogs that I use to augment the multitude of publications that I need to do my job. I am thankful for the terrific work of Bill McBride of the Calculated Risk blog. In addition to his wise insights about the housing market, Bill has a wonderful way of providing much need context to a world of economic numbers. I am also grateful for Barry Ritholtz’ “The Big Picture”, with its great mix of information, humor and a healthy dose of skepticism. Although a bit wonkier, I always learn from economics professors James D. Hamilton and Menzie Chinn, who are the brains behind Econbrowser and Mark Thoma of Economist’s View.

What would I do without economic resources, like the Federal Reserve Bank of St. Louis’s Reserve Bank FRED blog, with its nifty charting features; the Federal Reserve Bank of New York’s research on Household Credit; the Bureau of Labor Statistics’ historic databases; the Bureau of Economic Analysis’ interactive data; and the IRS’ rich web site? The people at these organizations have also been incredibly generous with me.

On the research front, the folks at Pew Research Center, the Center for Retirement Research at Boston College and the Georgetown Center on Education and the Workforce are producing some of the most interesting and useful publications, which help me in my job every day.

And finally, the greatest thanks goes to you—the readers, listeners and viewers, who take time out of your days to absorb my content and who generously provide commentary, both and good and bad. To quote Alice Walker, the words thank you “expresses extreme gratitude, humility, understanding.” On this Thanksgiving, thank you.