In today’s Office Hours, Eric answers Collin’s question: “what is a good financial New Year’s resolution?”
Setting New Year’s resolutions isn’t always successful, but there are some easy actions you can take to improve your finances this year.
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[00:00:00] Eric Brotman: Welcome to Don’t Retire… Graduate! The podcast that asks you what you want to be when you grow up so you can graduate into retirement with purpose and passion. I’m your host in valedictorian, Eric Brotman. Welcome to Office Hours where we answer listeners questions about personal finance, retirement readiness, and more.
[00:00:20] Eric Brotman: We received a question from Colin who asked, what is a good financial New Year’s resolution? And it is that time of year where we’re all thinking about turning the page on a, not only our calendar, but also on our habits and on our lifestyle and on some of the decisions we make. The challenge is that New Year’s resolutions in general don’t get followed for very long.
[00:00:40] Eric Brotman: Lots of gyms have lots of new members every January, and people who show up for two weeks and then drib and drab and suddenly by March they’re not at the gym anymore. So I think a New Year’s resolution is a good idea, but not really practical. I don’t know that they work in the way that they’re intended.
[00:00:58] Eric Brotman: So what are [00:01:00] the things that are gonna happen in a new year that you can control, that you can maintain, and that you can automate financially so that they continue? Well, one thing is all of the limits for various contributions to different types of accounts are indexed on a regular basis. And January 1st, 2023 is no exception.
[00:01:19] Eric Brotman: So the IRA limits are going up and Roth IRA limits the 401(k) limits and profit sharing limits are going up. The health savings account limits are going up. So if you’re someone who maxes your accounts, This is a time to make sure that you contact HR and that you are changing your paycheck to make sure that you take advantage of the new, the new rules.
[00:01:38] Eric Brotman: If you’re not someone who maxes your accounts, a lot of 401ks that employees are in have the ability to select an automatic increase function so that if you’re putting away 7% of salary, hypothetically, you can set it up to be 7%, but every January to ratchet up by 1% so that it goes to 8% or nine or 10 or so forth.
[00:01:58] Eric Brotman: Then you can do that in lots of different [00:02:00] ways. I think there’s something profound about that because often people get a salary increase from one year to the next if you’re a salaried employee. And if you get a salary increase and you keep your percentage the same, you will be putting away additional money.
[00:02:14] Eric Brotman: However, you won’t necessarily be changing the percentage on which you’re living. So I think it’s really important to also ratchet up those percentages on a regular basis if you’re not maxing the plan. So if you’re at seven. And you have a salary that’s set and the next year you get a raise and you go to 8%, you’ll be putting away significantly more money than the year before.
[00:02:37] Eric Brotman: And because of the raise, you probably won’t notice it in your net check. Now, this is a tricky time to do that because inflation is back for the first time in 40 years, and so everything feels more expensive because it is more expensive. And when that occurs, there’s a tendency to actually pull back on the way that this savings happens.
[00:02:57] Eric Brotman: I would encourage you in the absence of consumer [00:03:00] debt, which is the great leveler of wealth, if you don’t have consumer debt, adverse debt, then use this as an opportunity rather than a New Year’s resolution. Make it an automated process to increase what you’re putting into the various accounts. If you’re adding monthly to a college savings plan for your kids, take a look at it again, maybe ratchet that up by 50 or a hundred or $150 a month or whatever it is that you’re comfortable doing, but bumping up those limits every January 1st creates a fantastic habit, and as long as it’s automated, it’s not something that just wanes after a few weeks or a few months. So that’s the first way I’d answer the question, Colin. The next way I’d answer it is, if you don’t have all of your ducks in a row, a New Year’s resolution that you can keep is to get those things set up.
[00:03:46] Eric Brotman: So, for example, if you don’t have a current estate, it’s not as much a New Year’s resolution as a commitment to yourself that you’re gonna do this in 2023. Update your estate plan. If it’s more than five years old or there have been major [00:04:00] changes in your life, this is a great time to commit to doing that in 2023.
[00:04:04] Eric Brotman: If you don’t have a financial plan or a financial advisor, this is a good time to consider getting one. Start on that path. If you have significant debt, this is a great time to start looking at your debt in a different way. The New Year’s resolution might be to stop spending money on your credit card.
[00:04:21] Eric Brotman: That’s hard. The New Year’s resolution that works is automating the payments to those debts and maybe increasing them. Sending a little bit extra principle. And there’s lots of discussions around which way to do that if you have debt, whether you use the snowball approach or, or this, that and the other.
[00:04:37] Eric Brotman: I think rather than naming the approach, just know that you’re gonna have the additional monies on a regular basis automatically going to that so that you’re chipping away at your debt faster. So whether you’re saving money, or whether you’re paying off debt, or whether you’re making a commitment to yourself or your family to take certain actions, to me that’s a New Year’s resolution you can keep.
[00:04:59] Eric Brotman: And I don’t know [00:05:00] about you, but I hope you’re also going to the gym. So that’s, Colin, great question. I wish you luck in 2023. I hope it’s a successful year for you, and I hope you, I hope you gleaned some, some good content from this today. Go make those steps. They will make a difference, and I hope it’s a new year’s resolution you can keep and I wish you a happy new year.
[00:05:19] Eric Brotman: Thanks for your question. If you’d like to send us a question, which we might answer in a future episode of Office Hours, post it on our Facebook page, or tweet us at @BrotmanPlanning. I’d like to thank all of you for listening and watching today. We’d love to hear from you, so send us a message at Dontretiregraduate.com or on social media or leave ratings and reviews on your favorite podcast platform.
[00:05:39] Eric Brotman: Those mean the world to us. If you enjoy our show, don’t keep it a secret. Share it with friends and family so they can join you on your journey to financial freedom. I thank you for coming to Office Hours. Be sure to tune in next Thursday for new content. For now, this is your host, Eric Brotman, reminding you: don’t retire. Graduate!
[00:05:57] Eric Brotman: Don’t Retire… Graduate! Is part of the [00:06:00] Evergreen Podcast Network.
[00:06:05] Narrator: Securities offered through Kestra Investment Services, llc (kestra IS). Member Finra, SIPC. Investment advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) An affiliate of Kestra IS. Kestra IS or Kestra AS are not affiliated with Brotman Financial or any other entity discussed.
