5 Financial Resolutions You Should (Still) Make for 2020
Dear Rich Lifer,
Okay, now that we’re back to our first normal work week of 2020, it’s time to get cracking again.
So today I want to give you a list of financial resolutions that you should make to yourself right now.
Sure, day … weeks… years… and decades are all arbitrary lines.
And yes, plenty of resolutions are made – and then quickly broken – around those lines.
But these are easy to implement.
They’re easy to stick to.
Yet they’re powerful concepts that yield powerful results.
Heck, maybe you’re already doing them.
If so, great! Let’s just agree to renew our pledges for the new decade ahead.
Starting with …
“I am NOT going to accept paltry returns!”
While the calendar has switched years yet again and interest rates are a little bit better than they were may finally start pushing rates up a bit, most traditional income investments are still yielding very little.
Just take a look at this long-term chart of the Fed Funds rate (courtesy of macrotrends.net) and you can see just how bad things have been for decades now.
Meanwhile, there are plenty of solid stocks that are currently paying dividends worth 3%, 4%, 5%, or more.
I’m talking about safe, steady yields that should continue rising over time as dividends are hiked.
There are also conservative options strategies that can help you generate immediate cash payments from money you have sitting idly in a brokerage account or from stocks you already own.
And I’m still just scratching the surface.
As an example: My wife and I are planning on (finally!) converting our two-car garage into a rental unit this year. We figure the project might pay itself off in just a few years then produce big income in perpetuity thereafter.
The point is that there’s absolutely no reason to let your money sit idly by in 2020… not when there are so many ways to start earning better returns… often times immediately and with relative safety.
Which leads me to …
“I’m not going to take big risks with my money!”
I think now is a great time to re-evaluate how you’re investing.
If you have a lot of money concentrated in a handful of stocks – particularly the high-flying names – consider taking a step back, especially if you made a killing in 2019.
While the party can certainly keep going, I personally believe it’s a good time to start thinking about more conservative strategies and investments.
For example, it’s a fact that dividend stocks fare better than non-payers during market downdrafts.
It’s also true that more advanced approaches such as options selling and disciplined trading techniques like using stop losses can further limit your risk.
And obviously diversifying your portfolio into other areas like real estate and other tangible assets can insulate your wealth and help it continue increasing no matter what happens in any given year.
So please ignore the pundits who tell you that investing is an all-or-nothing proposition.
The reality is that there are always ways to balance risk and reward so you can keep making money while sleeping well at night.
“I am going to budget wisely!”
At the end of every year, my wife and I sit down and look at our family finances — both what we spent last year and what we plan on spending this coming year.
We’re about to do it for 2020 in the next week.
Obviously, I can think of more enjoyable things to do with my time. But the exercise helps us prioritize our lives and ensures that we’re on the same page for the coming year.
So whether you have a large family or you’re on your own, I encourage you to start (or revisit) your budget as 2020 gets underway.
It might seem restrictive, but having defined parameters for your spending is actually quite liberating. No more feeling guilty when you buy something. No more “credit card hangovers.” Plus, with a little planning and discipline, you’ll surely find new ways to save more money over the long-term.
You don’t have to get too elaborate if you don’t want to.
Simply start by figuring out what you’ve been spending on major categories like food, energy, vacations, and clothes …
Project how much you think you’ll earn in the coming year …
Then, going forward, keep track of your expenditures — no matter how big or small.
Many credit card companies will allow you to download those charges right into an Excel spreadsheet. There are free budgeting programs available online now. You can even use a simple pen and paper!
It doesn’t matter how you keep track. A year from now you’ll have a better sense of where you’re throwing away money and what big-picture categories you might want to spend more on.
Another resolution that each one of us needs to make?
“I’m not going to pay more taxes than I have to!”
A great side effect of having a solid budget in place is that other parts of your financial life also become clearer. Not only does it get easier to save and invest, it also gets easier to plan for your tax bills.
And when it comes to Uncle Sam, my philosophy is simple: Pay him the bare minimum.
Please understand that I am NOT saying you should cheat the government out of money you legitimately owe.
Rather, I’m advocating the use of every single credit and deduction available to you. I’m suggesting that you plan ahead and shift income to your advantage whenever possible. And I’m arguing that you make your investment portfolio as streamlined and tax-efficient as it can be.
Given our convoluted system – as well as the recent changes that went into effect – it simply takes a little bit of research and planning to save a substantial amount of money on your future tax bills.
Last but certainly not least …
“I’m not going to give away money through unnecessary fees or other fractional charges!”
There are fund managers who are worth their fees. Same goes for financial advisors and other industry professionals.
At the same time, the typical actively-managed mutual fund charges an annual expense ratio just above 1%.
Same goes for the average annual fee charged by a financial advisor on assets under management.
Which means the average investor using mutual funds inside of a managed account might be giving away 2% of his or her portfolio every year before a single dollar is even made!
If this sounds like you, take a look at what you’re getting for your money.
At this point, many brokerages aren’t even charging trading commissions anymore.
So if you aren’t getting consistent outperformance that more than pays for the fees, consider taking your money elsewhere.
Ideally, you can take the entire situation into your own hands once and for all!
As with every single resolution I mentioned today, it just takes a modest amount of research and planning.
Therefore, with a little resolve, you can make 2020 your safest, and most profitable year yet.
To a richer life,