Financial New Years Resolutions

With the new year just around the corner now is the time that most people are starting to think about their resolutions for 2019.  Almost every year there are the reliable ones like eating better, working out more etc, but as every regular gym goer can tell you the gyms are packed in January and back to usual by March.  Similarly I’d be willing to bet that restaurants have a pretty quiet January and the health food stores are killing it, and by March it’s all back to normal. 

Reading lists of new years resolutions though it seems as though there aren’t many about people’s finances.  This is probably partly because we just don’t tend to talk about our finances much, but also because it doesn’t seem to be that much of a priority for most people who just don’t feel that there is much they can do about them  So I thought it would be worthwhile to make some financial new years resolutions for myself and see how I go with keeping them, plus give some tips on how to make it more likely you’ll make the resolution stick.

There are several ways to make it more likely that you will actually keep your resolutions.  Firstly you should be making SMART goals.  SMART stands for specific, measurable, achievable, realistic and timely.  So an example of this for someone looking to work out more might be to say that they want to go to the gym 3 times a week and as part of that do one class a week for the entire year.  It’s specific, you can measure it, it’s hopefully achievable (depending on availability) and realistic in that most people can do it if they try, and there is a time limit involved. 

Someone looking to make a financial goal might say that they don’t want to buy lunch at work more than once a week for the whole year.  Again it’s specific (no more than one lunch per week) it’s measurable (you can write it down or keep a list on your phone) it’s achievable (just prepare your lunch at home the night before or take leftovers etc) it’s realistic (plenty of people do this already) and there is a time limit (once a week for the year). 

Secondly you should make yourself accountable by sharing your goals.  You don’t have to do it with everyone, but talking to people about your goals makes it more likely that you will follow through with them because they will hopefully encourage you, and if you don’t do it you will feel as though you have let others down.  Even just writing it down will make it more likely that you’ll follow through on whatever your goal is. 

Thirdly, try to remove temptation.  If your goal is to eat healthier but you always get a snack from the bakery on your walk to work, walk down a different street.  I deliberately try to avoid having much in the way of snacks available at home because I know that if it’s there I will eat it.  You don’t have to use any willpower to resist something if the option isn’t there in the first place. 

Fourth, break it down into smaller goals that build up to your bigger goal.  If you have a smaller goal on the way to your bigger goal then it gives you something which is relatively easy to achieve and instead of going “man that’s way too hard” you instead go “woohoo, smashed that one AND I’m closer to the bigger goal as a result”. 

You want to run a marathon?  Start by running a kilometre.  Then 3.  Then 5.  Then 8.  Then 10.  You get the idea.  Keep building it up over time rather than having a crack and giving up when you can’t do it the first time.

Lastly, try to make it a habit.  If you do something all the time then it just becomes part of a routine rather than something that you have to fit into the rest of your schedule.  Ideally it’s something that you do every day, but if not at least make it a regular event.  Even better, automate it if you can.  If you want to save money then setup an automatic transfer of the amount to your savings account for after you get paid.  It just happens with no willpower required!

My financial goal this year is to save and invest 52.5% of our combined net household income (excluding SG) for this year. 

Breaking it down into a SMART goal, it’s specific (52.5% of combined net household income) it’s measurable (I can track our income and what we invest) it’s achievable (we could live off less than what we currently do) it’s realistic (this is a about what we managed to do for the last 6 months of this year) and it’s timely (this year).  I’ve made myself accountable by putting it here on my blog, and I’ll probably put it in updates from time to time throughout the year or I may make a separate page. 

I combine removing temptation, breaking it down into smaller goals as well as making it a habit (and partly automatic) by having some of these savings setup to go out automatically in the form of salary sacrifice contributions to my superannuation.  So no temptation to touch the money because it doesn’t even hit my bank account, it’s a smaller goal of putting x amount in each month, and it’s automatic so I don’t even need to make it a habit. Plus once it’s in super I can’t touch it for a very long time!

For the rest of the planned savings each month I will do a transfer from the accounts my pay goes into across to either our savings account or just directly invest the money.  I’d automate it but our bills vary from month to month and I don’t want to start transferring money back out of the savings account in case it becomes a bad habit!  I’m disciplined with this sort of stuff so I trust myself to make it a habit based on the fact that I have been doing this every month for a while now.

Happily I’ve already got all of the following sorted but some of the other financial goals people might want to consider are paying off bad debt, establishing an emergency fund, reducing their fixed living costs, getting personal insurance in place etc. 

Using paying off bad debt as an example you might make that a SMART goal by saying you want to pay off x amount of debt per month, keep track of it over the year, make sure that it’s achievable and realistic and give yourself a timeframe to work with.  Then talk to other people about it to hold yourself accountable, remove the temptation to not do so by setting it up as automatic transfer and reducing the credit limit on the loan or credit card as you go so you’re not tempted, and have it setup as monthly goals so you can see yourself making progress. 

Establishing an emergency fund is essentially the same but instead of paying off debt you’re putting the money into a high interest savings account.  Ideally with a different financial institution to your transactional banking so you remove the temptation a little bit at least. If you’re looking at getting personal insurance in place then as per the post I linked to above then you need to see a professional for this so make an appointment to do so.

If you want to reduce your living costs I would suggest first taking a look at how much you are actually spending.  The way I do this is by just downloading all my transactions from my bank, putting them into a spreadsheet and then assigning them to different categories.  There are plenty of apps out there that will just do this for you though if you don’t like spreadsheets (I love numbers and spreadsheets in case you haven’t worked this out already from my blog!). 

After you’ve figured out what you’re spending (this usually contains a few shockers) then decide on what you want to cut it down by and do the rest of the stuff up top.

I’d also suggest not trying to do much stuff all at once.  You’re more likely to be overwhelmed with the amount of stuff that needs to be done and giving up in despair.  Focus on one or two, then once you’ve got those started and well on their way start working on the other ones.  Some of these are complementary as well, if you reduce your living costs then you will have more money to put towards paying off debt or establishing an emergency fund or whatever your priority is.  Win win!

Lastly you might be wondering why I didn’t set a goal of increasing my net worth by a certain amount this year?  The answer is that I’m at the stage now where investment returns are going to determine what happens with my net worth rather than how much I invest, I talked about it a little bit in this post here.  Obviously if markets go up then my net worth will go up, plus there will be the extra money that I’ll invest this year.

But if they go down by more than say 5 to 10%, then that’s going to wipe out whatever I put in plus possibly more as well.  I’m in this for the long haul so as much as it’s not going to be fun if that happens I accept that my net worth going up and down is part of the journey, but I don’t want to make goals that I don’t have control over.  This is why I’m focussing on what I can control (the amount saved and invested) rather than something I can’t.

What are your financial new years resolutions?  If you enjoyed this post and would like to read more like it then please subscribe!

This entry was posted in Uncategorized. Bookmark the permalink.

15 Responses to Financial New Years Resolutions

  1. fiexplorer says:

    Thanks, that’s a really interesting read. Can I ask – why 52.5% in particular? It seems very specific.

    Fully agree with the sentiments here. I have found that habits are strongly complementary – that once one feels automatic, and you have habituated to it, it becomes very easy to stack another incremental one on top of that. Over time, you end up miles from where you started. I also like with your ‘control the inputs’ approach to not setting a target.

    • Aussie HIFIRE says:

      Hey FI Explorer! 52.5% is the nice nearest round number to what I think we will actually be able to save/invest in dollar terms. And everyone likes round numbers!
      Yeah, if you try to do one thing at a time then you’ll probably manage to get used to it fairly quickly and then you can add something else into the mix. Try to do everything at once and nuh, that dog ain’t gonna hunt. It’s all about systems! And yep, I don’t like to make goals about stuff that I can’t really control, particularly when the uncontrollable stuff can easily swamp the parts that I can control.

  2. Miss Balance says:

    I like that you are focusing on what you can do, and not a number that is influences by the market. Consistent saving and investing is much more powerful than making decisions based on what the market is doing.

    Best of luck with your 2019 investing goal. With the framework you have put in place I have no doubts that you will be able to achieve it. I look forward to reading the updates as well.

    • Aussie HIFIRE says:

      Thanks Miss Balance! It’s important to focus on what you can control rather than what you can’t, and doing it this way it’s pretty much up to me to get the outcome that I want rather than relying on the market!

      • Chris says:

        I’ve stopped tracking net worth for this very reason… you have no control and attempting to take control can lead to poor decisions and over-fiddling with things.

  3. Good post mate.

    I also don’t like the net worth goal – it’s outside our control and rather meaningless if one is interested in living off dividends eventually.

    Also I’ve grown to appreciate how powerful habits are, so I try to focus more on those these days rather than certain goals, though I guess forming a habit is the goal in some way.

    Small wins and building momentum is quite powerful and probably under-appreciated. People want the big wins and they want them now lol.

    • Aussie HIFIRE says:

      Thanks Dave!
      I think the reason people focus on net worth is that it’s easier to measure at pretty much any moment whereas dividends are a lot harder to keep track of.
      Getting the right habits formed definitely makes life a lot easier, whether that be exercise or spending or whatever.
      Everyone wants to be rich tomorrow right, far fewer are willing to put in the effort and make the sacrifices to be rich in 10 years time.

  4. Mateo says:

    Thanks for bringing up the problems with measuring net worth. If dividends were easy to measure monthly, i’d do that instead for sure. It does concern me that measuring net worth of equities too frequently exposes me to the inevitable negative emotions one receives when price goes down, or up, which I’d rather avoid. I think I will seriously consider changing this practice this year, since this is a longterm goal, I’m not sure why i need an update every fortnight.

    • Aussie HIFIRE says:

      To the extent that you can switch off looking at your portfolio it’s ideal to do so in order to avoid the emotional rollercoaster! Best of luck with it!

  5. SJ says:

    Interesting your rational for your your savings rate and why this was was a goal – linking investment returns and the impact on net wealth due to the size of your current investment.

    Do you have any number threshold where that becomes the case?

    With the current volatility I have seen new contributions wiped out in 2 big dip days – where falls have been around 2%.

    Currently I buy 2-4 times per month with the monthly total being fairly consistent. The edginess due to volatility has sometimes made me spread out my purchasing a bit – accepting the higher brokerage this incurs. In general contributions represent 2-3% of the total portfolio.

    I know it’s kind of academic as you just plow on with the plan regardless. But your work with numbers had made me a bit more analytical with it all.

    • Aussie HIFIRE says:

      Hi SJ. There’s no hard and fast rule as to when market returns are going to be more important than what you’re actually investing for increasing your net wealth, it really depends on the amounts you are saving, the amount you have invested, and how volatile the returns on your investments are. The larger the number you have invested and the smaller the number your are saving the more important the return on investments becomes. If you have an all equity portfolio then it can be pretty volatile, if you mix in some bonds, TDs, HISAs etc then it becomes less so but with a lower expected rate of return over time.
      Plucking some figures out of the air for an example though, if you have a portfolio size of $1,000,000 and are putting in an extra $50,000 each year, if the value of your portfolio declines by more than 5% (50,000/1,000,000) then you’re going to come out with a lower net worth than you started the year with.
      In my particular case a fall in portfolio value of more than about 7-8% would wipe out my extra contributions for the year. This is obviously an entirely possible scenario given the performance of stock markets last year, hence my goal being about savings rate rather than net worth.
      If each monthly (or twice monthly) contribution of yours is 2-3% then your savings rate is a pretty high percentage of your net worth so the market would likely have to fall a lot more before you would end up with a lower net worth though.
      Glad to hear you’re enjoying the numbers!

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.