What to Do for 2015
January 16, 2015I usually view “what to do at year end” and “what to do to start the new year” financial articles with great disdain (the same way I typically avoid writing “theme” blog posts for Valentine’s Day, Mothers’ & Fathers’ Day, Independence Day [is there any bigger cliché?], and any other over-played theme). However, I have spent most of my work hours early in 2015 talking to people who want to look at things they can do in the next 12 months in order to make progress toward becoming financially secure. It’s only because I have been asked so often that I’ll cave in, become part of the crowd and write a “What To Do for 2015” suggestion list.
The first thing that anyone can do to make 2015 a year of moving forward is to figure out where they are currently. There are three things that I suggest for people when they are getting started on the “where am I now” part of the financial journey. Step 1 is seeing your financial position on one page, and this Financial Organizer is a quick and easy way to see that. Combining that with this Expense Tracker is Step 2.
The third step in understanding your starting point is using mint.com. It’s a free service and is incredibly useful in helping you see exactly where your money goes. The Expense Tracker is a great tool, but most of the time people only catch the big expenses while Mint can catch every transaction that might otherwise fall through the cracks. If you use those three tools, you will absolutely be able to figure out exactly where you stand financially to start the year.
The second thing you can do to get this year started off in the right direction is to figure out where you want to be by the end of the year. Set clear goals. “I want to save $3,600 this year.” “I want to contribute $5,000 or more to my 401k.” “I want to pay off two of my five credit cards.”
To make it very manageable, set only 3-5 goals. If you set 217 separate goals, you are setting yourself up for failure. Any more than 3-5 and you will have trouble tracking them and measuring success. Fewer than 3 and you may not be really trying to make very much progress! Goal setting is a huge part of the process of progress.
Another thing that will help make this year a year of great accomplishments is to make paying off debt a high priority item if you have any debt. In a world where bankruptcy is far too common, cash flow is far too limited and the potential to stay at one employer for 30-40 years is becoming much more difficult, I’ve started to use the term “making yourself financially bulletproof” to talk about debt elimination. While there is good debt (mortgage, student loans and 0% auto financing pop to mind if reasonably used) and bad debt (high interest credit card debt), eliminating all debt can help you become financially bulletproof.
If your employer were to tell you “we love what you do, but we are going in a different direction” (that is happening a lot in the world of NFL coaches right now!) and you have no mortgage, car payment, credit card payment or student loan debt to service, you could make unemployment compensation and your emergency fund last an awfully long time. It’s not always about rates. It’s also about cash flow, especially as you get later in your career and the risk of downsizing becomes greater.
The last thing that I’ll mention is that you should look at your employer’s benefits to see if there are opportunities to maximize your wealth. Most people I talk to are contributing to their 401k at whatever level their employer matching contribution is maximized. That may not be nearly enough to retire comfortably. A rule of thumb in the financial planning community is that it will take saving 15-20% of your income for a few decades to retire with a lifestyle that resembles your lifestyle today.
Make this the year that you really challenge yourself to increase your 401k contribution rate beyond the employer matching contribution level. We learn to live on what we take home, so every year you can increase your contribution by 1-2% and you won’t really notice it after a couple of paychecks. The IRS maximum for 2015 is $18,000 (and this number increases periodically with inflation adjustments), so keep the pressure on yourself this year and in future years until you are reaching the maximum contribution level. I’ve never heard anyone complain that they’ve saved too much for retirement.
Along with the 401k, review your life insurance options at work. You may be able to obtain low cost life insurance through your employer. Compare it with a quick life insurance pricing website to see if there is a cost savings available.
Also, are you maximizing your level of disability insurance available at work? One of the bigger risks we all face is the risk of some type of injury or illness preventing us from earning our income at a time when our family is most relying on it. This is where a very solid disability insurance benefit can be helpful.
For those interesting in “investing in yourself,” check out your tuition reimbursement policy. It’s possible to advance your career through education with very little in out-of-pocket expenses. Your health savings account (if you have one available, and they’re becoming more widely available) is a way to create another significant pool of assets that increases your wealth. Pay for small co-pays and other expenses out of your normal cash flow while allowing your HSA to grow and accumulate enough money to fund your healthcare expenses in your latter years. Those are the bigger employee benefits that you can use, but it’s clearly not an exhaustive list. Dig into your benefits package to see what is available that you could maximize this year to build your wealth.
With a little bit of focus, a little bit of effort and this short list…you can make 2015 a year of getting closer to financial security. I promise that if you do these things, no harm will be done. In fact, quite a bit of good may follow…