Money-related New Year's resolutions are extremely common, as there's always room for improvement when it comes to saving, investing, or spending wisely. With that in mind, we asked four of our contributors to share their resolutions with our readers.
Here's what they had to say.
One of my resolutions for the New Year -- and one you should consider as well -- is to be more aware of exactly where my money is going. The best way to do that is to keep close tabs on where your money is going. You can take extensive notes, or you can sign up for a smartphone app that links to your various accounts and tracks your spending automatically. For at least a month, but ideally more like three months, record everything you spend money on, from newspapers and coffee to electric bills and car repairs.
Group these expenses in categories such as food, housing, transportation, utilities, insurance, education, entertainment, travel, clothing, loan repayments, gifts, donations, savings, and so on. In order to get a picture of how much you're spending over the course of a year, annualize those expenses -- for example, if you spend $50 eating out each week, that's $2,600 per year -- and add in any infrequent expenses you might pay throughout the year, such as a home insurance bill or annual subscription or membership fees. It can help to go through a year's worth of credit card statements and your check register, as they can remind you of expenses you don't pay often.
Once you've gathered all this information, you'll likely be surprised by some of your spending patterns and recognize areas where you can easily rein in your spending. You could save hundreds or even thousands per year by, for example, shopping around for cheaper car insurance, eating out one time less per week, or canceling a subscription you're not making full use of.
No matter where you're overspending, it's hard to make meaningful changes in your spending until you have a firm grasp of exactly how much you're spending on various items.
My New Years' resolution is to contribute as much as possible to my retirement accounts in 2016. I didn't do a bad job of it in 2015 -- but there's always room for improvement.
Personally, I keep two retirement accounts. I have a Roth IRA to take advantage of tax-free withdrawals after I retire and to keep some retirement money that's not tied up (you can withdraw your original contributions to a Roth IRA at any time without incurring taxes or penalties). I also have a solo 401(k) to take advantage of the tax deduction that comes with it. However, there are several other great retirement-savings options available, and even more if you're self-employed.
You're allowed to contribute up to $5,500 to an IRA during the 2016 tax year, as well as an extra $1,000 if you're over 50. For an employer-sponsored retirement plan such as a 401(k), the limits are far more generous. In these accounts, you can defer up to $18,000 from your paychecks (or $24,000 if you're over 50). Other retirement options such as a SEP-IRA or SIMPLE IRA have their own limits you should be aware of.
I realize it's not practical (or necessary) for most people to contribute the absolute maximum allowed to their retirement accounts -- myself included. However, if you make retirement saving a priority and contribute as much as you can reasonably afford, then you may enjoy a much richer retirement. As a quick example, if you contribute $5,000 to an IRA this year and achieve a respectable return of 8%, then that initial investment will grow to $50,300 in 30 years. But if you can boost your contribution to $5,500, you'll end up with $55,300 in 30 years' time. In other words, that extra $500 you contributed up front will earn you another $5,000 in the end, thanks to the magic of compound interest.
Imagine how different your retirement could look if you contribute every year and raise your contribution every chance you get. If you're not doing so already, let 2016 be the year you start!
My money resolution for the New Year is to be more diligent about investing into the market year-round.
One of the best (and simultaneously worst) lessons I ever learned about stocks is that nothing can go up forever. You as an investor can't prevent recessions and market downturns from rearing their ugly heads. However, this is also dangerous advice; after all, the long-term trend of the stock market has been to climb higher with a seemingly limitless ceiling, despite the many speedbumps along the way. If I had to put $10 in a jar for every time I believed the market was "overvalued," I'd probably have enough to retire by now. In a vast majority of those instances, the market, as a whole, moved even higher. Worse yet, missing even a few of the market's best days could cause you to miss out on big gains over time.
Instead of waiting to make my stock purchases in November and December, as I do most years in order to take advantage of investors who are pushing stocks lower through tax-loss selling, I'm going to make a serious effort to invest with more regularity throughout the year. This might entail simply adding a little bit to companies I'm already holding within my portfolio, or perhaps taking a nibble on a few new positions. Adding money to my investment account with regularity will remove some of the emotions from my trading habits, and it'll further help me break the habit of trying to time the dips in stocks which can't be called with any accuracy over the long run.
One resolution I'm making this year is to be smarter about how I spend my time looking for money-saving opportunities. Once you get into the habit of finding ways to save, it's easy to fall into the trap of putting too much effort into finding bargains that don't always add up to much. Putting a dollar value on your time can be challenging, but it's clear that, for example, driving across town to save a few dollars on a household item isn't worth the trouble.
Instead, the smarter move is to spend your time on the things that can truly make a big difference in your financial situation. If you carry credit card debt at a high interest rate and can find a 0% introductory balance-transfer deal, then you can end up saving hundreds of dollars in interest charges during the promotional period -- all with only a few minutes' work in talking to customer service agents and getting an account set up. Finding even modest savings in percentage terms on big-ticket items like cars or homes can pay off much more than getting a bigger discount on low-cost items. The greater the value you put on your time, the more selective you'll want to be when searching for saving opportunities that will make a difference not only in your finances, but in your quality of life.