In 2015, Resolve to Practice Better Financial Habits
Instead of making another round of New Year’s Resolutions, focus on improving your money habits. “Do-able” behaviors will put you on course to achieve your financial goals in 2015 and beyond.
In how many past New Years have you told yourself that this is the year you’re going to master your resolutions? This time, you’re really going to pay off that credit card and get on track to meet your retirement savings goals. It’s as easy as mind over matter, isn’t it? Not necessarily.
The majority of New Year’s resolutions are financial in nature. And while the numbers vary slightly from study to study, we know that while most Americans make New Year’s resolutions, fewer than ten percent of resolutions are achieved. That’s a lot of disappointment.
Where do we go wrong? Did you know that, on average, it takes 666 days to form a habit? Many worthwhile financial goals take ten years or more to reach. Most of us fail to accomplish our financial resolutions because we don’t give ourselves enough time to incorporate new money behaviors into our established routines. Old habits die hard.
That being the case, what can you do differently? This year, consider taking a break from the same old financial resolutions. Instead, work to create new habits with your money that will help healthy new choices and actions become routine.
Healthy Habits Start with Goals
Good financial planning starts with an awareness of your goals. By setting savings goals-targets on the horizon to work toward-you’ll make it easier to actually get there. Your first step should be to set financial goals, such as I want to pay off my mortgage in five years or I want to save enough to put my children through college or I want to buy a house at the beach.
For example, do you want to retire in the next ten years? Figure out how much you need to accumulate and then set your savings goal. Do the math to see what you need to save on a monthly, quarterly or annual basis to reach your goal. Then set up a plan so that the money goes directly into your investment or savings account before you have the chance to spend it.
Plan to Reach Your Goals
After you set your goal or goals, you should make a plan to fund your goal(s). Start by analyzing your cash flow. Sit down before every month starts and project your income and expenses for the next month. Use this to plan how much you can save for the month. Transfer the difference to your savings or investment account and do not spend more than your projection. At the end of the next month, compare your actual spending to the projection. Repeat this every month and before long you will be saving enough to meet your goal.
Select Investments that Fit You and Your Plan
Once you know your goals and have a plan, you will have a filter through which to process investments. If an investment doesn’t align with your plan or goals, you do not select it for your portfolio. Risk and reward parameters must be considered. I will discuss this in more detail in the future.
By focusing on habits, you will adopt simple, sustainable behaviors that will put you on the path to achieving bigger and better goals in 2015 and beyond.
Give us a call if you would like to talk about your personal financial goals and how to make plans to achieve them. Happy New Year!
Meet the Author
Tom Coulter, CPA
Tom is the President and a founder of Meridian Trust. Tom graduated from The University of Tennessee, Knoxville, in accounting with honors, in 1978. Tom previously worked for the international accounting firm, Deloitte. He later joined the financial medical advising firm, FIS Associates, before founding Meridian Trust in 1997. Tom has worked extensively in retirement planning, taxation, estate and financial planning and investment management. He is a Certified Public Accountant, a member of the American Institute of CPAs (AICPA), and the Tennessee Society of CPAs (TSCPA). Tom is also credentialed as a Personal Financial Specialist (PFS) by the AICPA.