Nick Foy, CFP®
I’m not typically into New Year’s resolutions; I tend to think that if there are things we’d like to do differently, we shouldn’t wait until January to start. And anyway, 80% of resolutions fail by February, so really, what’s the point?
Instead, consider these New Year’s resolutions, specific to your finances, that should be made anytime you’re doing something different:
- Max out your Health Savings Account (HSA).
Back in June, I wrote about the significant HSA benefits compared to other types of tax-advantaged accounts. HSAs offer pre-tax contributions and tax-free growth. You can contribute until April 15 for 2018, and your 2019 contribution can also go in anytime.
When you factor in the significant tax savings that HSA accounts offer, I typically find that the additional deductible associated with the required health plan is more than worth it, even for heavy medical users.
We often refer our clients to Lively where they can open an HSA and link a TD Ameritrade brokerage account at no cost. Investing HSA money is a great way to allow to grow, tax free. (P.S.: Lively isn’t paying me for a referral.)
- Be careful with budgeting.
Most advisors stress the importance of having a budget, and they’re not wrong. But I’ve found that most people who have budgets tend to spend every last cent available and show no margin. There’s nothing left over, because the budget seems to show that each dollar is somehow accounted for. So when we recommend modifications, the budget makes it seem like there’s no room. Stress ensues.
Instead, start the spending plan with amounts you want to give away to non-profits, then move to amounts you need to save in order to reach your long-term financial goals. Then, spend the rest.
Give. Save. Spend.
People who do this seem to have plenty left over at the end of the month, and don’t need to be tied down by working through specific budgeting categories with too much rigor.
- Use the right type of credit card.
People love points and miles. I prefer cold hard cash.
Anyone who has flown American Airlines in the past five years has had to hear the 15 minute long sales pitch they give for their credit card. They’re willing to throw miles at you like they’re Bitcoin. When it comes time to book a trip on miles, they’re about as useful.
Miles cards are a great way to take money that’s good anywhere and turn it into something less valuable and only good at one place.
Instead, I use the American Express Blue Cash Preferred card at the grocery store (6% cash back, a great deal, even with the annual fee) and the Costco Visa on dining, gas, and travel. (P.S.: I’m not getting paid for credit card referrals.)
Using the right card at the right place can mean hundreds or thousands of dollars in your pocket every year, and dollars are accepted almost anywhere!
If you have credit card debt that continues to accumulate, none of what I said above applies to you, but thanks for paying interest to subsidize my cash back! Now go start using a debit card.
- Ignore the market.
Here’s my fearless prediction for how the market will do in 2019: I have no idea. Neither do you. Neither does anyone else. Invest accordingly.
- Use your money to be generous to others and to make memories (or to save for future memories!), not to accumulate things.
Twenty years from now, your kids won’t care about your 2019 Model 3, except that it might make for good fodder for their counseling sessions.
Time is precious. Spend it making memories with the ones you care about.
- Act like a steward, not an owner.
Treat your money and possessions as if they belong to someone else, and you’ve been entrusted with them. You’ll be much more careful, and feel much more free. Even if you don’t believe that God owns it all, people who act like He does tend to be in better situations than those who don’t. This book is a great primer on the topic matter.
What’d I miss? What’d I get right? Let me know in the comments.