I am such a personal finance, goal setting and life planning geek that I couldn’t manage to write a short Personal Finance Resolutions post. So, welcome to part II! This list of financial resolutions is very similar to part I, only some of the suggestions are more advanced or take more time to complete.
I suggest reading through 15 Quick & Easy Personal Finance Resolutions to Consider for 2020 first, then check this list out for additional, or more intermediate/advanced, options.
Contents and Quick Links
- 1 Calculate your savings rate
- 2 Save an additional 5% of your income
- 3 Review your retirement account and increase your contributions
- 4 Review your life insurance policy
- 5 Create your In Case Of Emergency Binder
- 6 Build an emergency fund
- 7 Automate your savings
- 8 Create a travel savings fund
- 9 Create a Christmas savings fund for next year
- 10 Plan how you will save for kids college
- 11 Save your annual bonus and pay raise
- 12 Invest
- 13 Buy your first rental property
- 14 Meet with a CFP
- 15 Write down all your financial resolutions and track your progress
- 16 Recap
- 17 Action Steps
Calculate your savings rate
If you want to save more aggressively, I highly recommend calculating your savings rate. This is the amount that you save as a percentage of your total earnings. Simply put, if you want to save more, you need to increase this number.
The savings rate for Americans in September 2018 was 6.3%. The highest it reached in the last two years was just 7.7%. However, these numbers a skewed by America’s top earners. Those in the top 1% save a comparatively impressive 38% of their income. If we look at the median savings rate, it somewhere in the 2% range.
What does this mean for the average American? If you earn $50,000 annually and only save 2% of your income, it would take 50 years to save one year of your income. This simply isn’t enough to retire on.
Compare this to the 50% savings rate goal of the FIRE (Financial Independence, Retire Early) community. In his well-known blog post The Shockingly Simple Math Behind Early Retirement, Mr. Money Mustache reveals just what it takes to retire in a relatively short period of time. If FI is on your bucket list, your savings rate needs to go up.
If you want to improve your savings rate, review your budget and find ways to live on less.
Save an additional 5% of your income
Regardless of how much you are currently saving, chances are, you could save even more. Once you calculate your savings rate, calculate how much it will take to increase by an additional 5%. Review your budget and find ways to cut back on your overall spending, or, find some creative ways to increase your earnings over the year. Just be sure to save any additional money you make!
For further reading on how to calculate your savings rate and begin paying yourself first, visit:
Review your retirement account and increase your contributions
Are you utilizing your retirement savings account and taking full advantage of employer contributions? Now’s the time to review your account and make sure you are on track to retire when you want to.
Here are some steps to review, and improve, your retirement account:
- Check how much you are contributing from your paycheck
- Research how much your employer will match and ensure that you receive the full amount possible
- Calculate your estimated retirement age based on your current contributions
- If you aren’t on track for retirement, calculate how much you need to be contributing
- Review your budget and and make adjustments to your contribution as needed
Visit 11 Steps To Rock Your Employer Sponsored Retirement Plan for more info.
If you don’t have an employer-sponsored retirement account, visit The Ins And Outs Of Retirement Plan Options to learn more about your options.
Review your life insurance policy
Chances are you have life insurance coverage through your benefited employment. If not, do you have a private policy in place? Why or why not?
It’s time to review what you do have, and consider what you actually need. Is your family covered in the event that you pass away unexpectedly? Are you covered in the event that your spouse passes away unexpectedly? These are things we don’t want to think about, but trust me, it’s so very important that you plan ahead and be financially prepared.
Read more about the types of life insurance policies available and how to pick the right type of plan, and amount of coverage you need:
Create your In Case Of Emergency Binder
My husband passed away when my son was just 3 years old. I was a stay-at-home mom and suddenly I found myself with no income, no career, and no plan in place to provide for myself and my son. It was a disaster and no one should ever find themselves in a similar position. It was totally preventable.
I can’t stress enough how important it is to have an In Case Of Emergency (ICE) Binder. This year, vow to get more organized, be financially prepared, and take care of your family.
You can learn more about the ICE Binder by reading Why You Need A Family Emergency Binder.
In case you are reading this between January 1st thru January 30th, there is a New Year’s sale on the Family ICE Binder! Buy it now for 25% off!
Build an emergency fund
What would happen to your finances if you were hit with an unexpected bill? Would you be able to cover a $1,000 expense? How about $2,000? What if it was for two months worth of your salary?
According to a recent study from Bankrate, nearly a quarter of Americans have no emergency savings at all. They are one unexpected bill away from financial disaster. Only 29% have a full six months of living expenses saved.
If you aren’t capable of covering at least three months living expenses, then it’s time to focus on building up your emergency fund. Make a goal of reaching a full six months of expenses. Then, you are ready to move on to saving for investing and wealth generation.
Automate your savings
This is another resolution that you can set up quickly and reap the benefits all year long. It’s the perfect way to establish the important habit of paying yourself first. Once you create your budget and you know how much to set aside for savings, have that money automatically transferred to a separate account every month.
Ideally, begin paying yourself first by transferring money to a savings account immediately after your paycheck is deposited. Once you adjust to the new amount you have left over, you won’t notice the transfer. Otherwise, when money is sitting in your checking account at the end of the month, it will feel like “extra”, and you will be tempted to use it for spending.
Also, anytime you make additional improvements to your budget, have that money transferred to savings as well. As an example, as soon as I paid off my car, I established an auto-transfer of the same amount as my car loan to go right to my savings. Since I was already accustomed to making the payment, it didn’t notice the change. My savings account sure did though.
You can learn more about the power of paying yourself first by reading Pay Yourself First, The #1 Secret to Wealth Building.
Create a travel savings fund
Do you dream of travel but never go anywhere because it’s just too expensive? If so, now is the time to start a travel savings fund. Pick a destination that you really want to visit. Then, estimate the cost. Decide when you want to travel, then divide the cost by the number of months until you leave. This is the amount you need to save every month to finally go on your dream trip.
Create a Christmas savings fund for next year
How much money did you spend on Christmas this year? Did you budget for this amount? Was it more than you expected to pay?
Every single year I’m somehow surprised by how expensive the end of the year is. This year, I added travel to the mix. I had always heard how expensive flights are around the holidays, but man, it was still shocking. As soon as I booked my flights I vowed to start a Christmas savings fund for next year.
Start out by running the numbers on what you spent this year. Do you expect any major changes for next year? You’ll want to factor in any additional gift purchases or travel if appropriate. Then, divide that total estimated cost by 11 months. This is how much you will need to set aside every month in order to be prepared for Christmas next year.
If you don’t like the number, think of some ways to decrease your spending for next year. Consider staying home, drawing names to limit the number of gifts purchased, and plan to set a budget to prevent spending too much on gifts.
Christmas is really about being with family and loved ones, not extravagant presents. So don’t be afraid to make some small (or big) changes to the holiday tradition. Your finances will be better off for it.
Want to revisit this later? Save it to your favorite Pinterest board!
Plan how you will save for kids college
If you hope to pay for your child’s college education 10 years from now, the estimated cost is around $150,000 (using the Vanguard college cost projector). How do you plan on saving this amount?
It’s hard enough to save for ourselves, with paying off debt, saving up an emergency fund and planning out our retirement. Saving for our kids to go to college is not an easy task. But if you really want to do this for them, it’s essential to have a plan.
I recommend speaking with a certified financial planner to get the best tailored advice based on your unique situation. A 529 Plan is a tax-advantaged savings plan that allows you to save specifically for college. Contributions are made with after-tax dollars and invested in a fund (varies by plan). All investment income grows tax-free and so long as the money is used on qualifying educational expenses, it remains tax-free.
Another option, one that I wish I had known about when my son was younger, is real estate investing specifically for college savings. The idea is that you purchase a rental property (ideally a small multi-unit) using a 15 year mortgage when your child is very young. The tenants pay the mortgage for you and the entire property is paid off in full when it’s time for college.
At this point, you have a few options. You can use the rent to pay for college, you can refinance to cover all expenses and keep the property, or, you can sell it and use the funds for college.
Not sure how to purchase a rental property, especially if you don’t have a downpayment saved up? Don’t let that stop you! Visit these posts to learn more about real estate investing:
Save your annual bonus and pay raise
The end of the year often means a bonus and annual pay raise. Instead of mentally spending that money before you even receive it, resolve to save it this year. And I don’t mean that you should save a portion of it. Save ALL OF IT!
Utilize your new powers of setting up automatic saving transfers and move that money into your savings before you ever see it. You won’t notice any difference, but your savings rate will automatically increase and you’ll be on your way to meeting your savings goals.
Let this be the year that you get started investing!
It doesn’t take very much. In fact, it’s possible to get started with nothing at all (see below under the “buy your first rental property resolution).
Once you have an emergency fund that you are comfortable with, start saving to invest. You can open a personal Vanguard brokerage account with as little as the cost of the stocks or bonds you wish to buy. I highly recommend the Vanguard total stock market ETF VTI. It’s like buying a tiny share of every US stock. You can read more here.
Buy your first rental property
If you are ready to start building wealth and passive income, real estate investing (REI) is my personal favorite way to do it. REI has so many benefits, from flexibility, the power of leveraging your investment with a mortgage, flexible financing options, and total control of your investment. You can even get started with low, or no, money down.
If you’re new to the idea, read up on why this is such an amazing form of investing:
For ideas on how to get started with very little money down, there is a fantastic book to help you get started:
Meet with a CFP
Regardless of what your financial resolutions you set for the next year, it can be a huge help to meet with a professional to ensure you start out on the right step.
Personal finance is extremely personal, after all. Every individual and family situation is unique, as is the area you live in and your overall goals. A certified financial planner is well worth the expense, often they can save you significantly more than the cost of the meeting.
This year, get some advice and help to map out your future and what you need to do to achieve your financial goals.
Write down all your financial resolutions and track your progress
You may have noticed that I already listed this one on my 13 Quick and Easy Personal Finance Resolutions To Consider for 2020. What can I say, it’s so important that it needs to be on both lists!
Whichever personal finance resolutions you decide to work on this year, goal success starts with a plan. So, start with writing down what you want to achieve over the next year. Make a plan for how you will work on your resolution by breaking it down into actionable steps that you can incorporate into your daily schedule. Then, start tracking your progress. Little by little, even if you only take baby steps, you will make progress. You can achieve your financial resolutions this year!
I highly recommend using a success journal/planner for this step. My favorite, which I will start using in the New Year for my goals, is this one:
While it is designed specifically for real estate investing goals, it can be used for any goals you have.
Other options include:
For further reading on goal success and how productivity, check out the following posts:
This completes my list of 15 Additional Financial Resolutions to Consider for the New Year. Be sure to review the first list, 15 Quick & Easy Personal Finance Resolutions to Consider for 2020. Sadly, I just couldn’t list them all in one post, as it was ridiculously long!
This second list is a bit more advanced than the first one. If you are new to personal finance and just starting to make some positive changes to your finances, I recommend going through Part I, then adding one or two resolutions from Part II. Remember, start small and focus on making progress. If you try to take on too much at once, you are much more likely to become overwhelmed and not make any progress at all.
Don’t let that happen! Let this be the year that you take control of your finances and stick to your goals. This can (and will!) be your best year yet.
A quick review of the 15 Additional Financial Resolutions to Consider for the New Year:
- Calculate your savings rate
- Save an additional 5% of your income
- Review your retirement account and increase your contributions
- Review your life insurance policy
- Create your ICE Binder
- Build your emergency fund
- Automate your savings
- Create a travel savings fund
- Create a Christmas savings fund
- Plan how you will save for kids college
- Save your annual pay raise and bonus
- Buy your first rental property
- Meet with a CFP
- Write down all your financial resolutions and track your progress
- Read Part I, 15 Quick & Easy Personal Finance Resolutions to Consider for 2020
- Write down a few resolutions from Part I that you need to work on for the year
- Read the Step-by-Step Guide to Rock Time Management and Productivity in 2019, this will help you plan out how to make progress and stick to your resolutions
- Break down your resolution into actionable steps
- Schedule those action steps into your day
- Find an accountability partner to help keep you on track
- Good luck! Let me know how it goes by commenting below. Which personal finance resolutions will you make this year?