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Financial New Year’s Resolutions

Some ideas to improve your finances this year

New Year, New Finances!

This is the time of year when many people are planning some life goals, hoping to improve their lives. We can apply the same idea to our personal finances! Having clear goals is a big step towards achieving financial success. However, a big problem with New Year’s resolutions is that only a small percentage of people achieve their resolutions .

There is a very simple solution that may help you be amongst the few successful people: write down your goals! A study from the Dominican University of California shows that writing down your goals makes you more likely to achieve them. This is a very low-cost action with amazing results!

Here are some ideas of financial goals you might adopt for yourself, that we suggest you write down so you can achieve them!

1. Track Your Net Worth Quarterly

Your net worth is a key metric of your financial health. Keeping track of it will keep you motivated and help you identify patterns in your spending and investments.

This study shows that monitoring goal progress makes you much more likely to achieve your goal, especially when you write down the progress.

If you would like to track your net worth monthly, that would be very beneficial. We are suggesting you track it quarterly to reduce friction and to allow you more time to make adjustments to your finances between measurements.

Action Items:

• Create a spreadsheet with all your assets (accounts, investments, real estate) and liabilities (student loans, mortgages, car payments, debts). Calculate your total net worth (total assets minus total liabilities). Add the date to the column header. Update the spreadsheet at the end of every quarter.

Pro-tip: use the first column for links to access your accounts. This will make your update process faster.

2. Understand Your Budget

A budget is supposed to serve you. You control your money so it does not control you. Understand where your money is going and make sure you are spending it on what matters to you.

Action Items:

• Track your budget. You can use a spreadsheet or apps like LunchMoney , YNAB , or RocketMoney.
• Identify categories you can optimize.

3. Calculate Your FIRE Number

Your FIRE number is the amount of money you need invested to generate enough passive income to cover your living expenses indefinitely. Knowing your FIRE number will give you a clear goal.

Action Items:

• A popular (but overly simplistic) method to calculate your FIRE number is using the 4% Rule, which states that you can withdraw 4% of your investments annually without running out of money for at least 30 years. Determine your yearly expenses and divide that by 4%.
• If you want something more customized to your situation than the 4% Rule, you can use our Free Calculator to determine your FIRE number. It allows you to make a simple projection to understand how long your money will last.
• If you would like to really stress test for different scenarios and have more sophisticated projections using Monte Carlo simulations, sign up for our newsletter to be one of the first people to use our Premium Calculator.

4. Have An Emergency Fund

Emergencies happen and having a safeguard is the easiest way to guarantee you are going to stay on track with your financial goals and not get in wanted debt. If you lose your job, this will give you a buffer to find a new job without the financial stress.

Action Items:

• Have 3-6 months of your living expenses in a high-yield savings account.

Pro-tip: if you are a dual-income household, you already have a high net worth, and you are more risk tolerant, and both partners are high earners (one income can supply your yearly expenses) you could have most of your emergency fund on a normal investment account with safer investments (like an index fund).

5. Optimize Your Investments (Reduce Fees)

Compound interest is really powerful. You probably heard of the wheat and chessboard problem that demonstrates how fast something grows at the end of an exponent. In investments, every percentage count! If you are paying a 1% management fee, that has a big effect on your overall savings and is losing you more money than you think.

Action Items:

• Look at your investments and identify the fees of each investment.
• Determine if you should be paying for them or not (i.e., Is your return actually higher when you pay the fee? Do you have any benefit? How does that compare to other options?).

6. Automate Your Finances

Having good finances is all about having good habits. The book “The Atomic Habits” by James Clear proposes that we build good habits by making them obvious, attractive, easy, and satisfying. In personal finances, we can create those good habits by automating actions like credit card payments or adding money to investment accounts with automated investing.

Action Item:

• Identify what bills you can put on auto-pay
• Set a specific amount of your paycheck to be directly deposited in a savings account or investment account

7. Learn about Different Investment Accounts

There are different types of investment accounts with different pros and cons. Learning about them will help you grow your money faster in a way that works best for your unique situation.

Action Items:

• Research about brokerage accounts, IRA, Roth IRA, 401K, HSA, FSA, Mega Backdoor Roth.

Pro-tip: if you are a high-earner, you can still use a Roth account by using the backdoor strategy.

8. Find An Easy Single-Action to Save You Money

This low-effort, high-reward goal simplifies saving by creating an immediate, lasting impact without requiring constant budgeting discipline.

Action Item:

• Find something in your budget that you can negotiate or remove (e.g., internet plan, phone plan, insurance plan, gym membership).
• If there is a subscription you really enjoy and will definitely use consistently, sign up for the yearly plan to save money.

Pro-tip: if you have a high-interest mortgage, renegotiate it when interest rates are low.

9. Define Your Investment Strategy

If you want to grow your money as efficiently as possible, you need to know what strategy you want to adopt based on your risk profile and personal needs.

Action Item:

• Identify your risk profile. Determine what kind of investments you would like to make and with what ratio.
• Identify which accounts you need to fund, with how much money, and in what order.
• Identify which debt you will pay off first.

10. Find The Best Credit Card For You / Learn About The Benefits of Your Current Credit Cards

Credit cards have different rewards that suit different lifestyles. Some credit cards can help you save a lot of money if you use them smartly.

Action:

• Review your spending categories (e.g., dining out, travel) and find a card that has rewards for your highest expenses.
• Review your current credit cards and identify what benefits they have that you would like

11. Maximize Tax-Advantaged Accounts and/or Maximize Your 401K Matching

You can reduce your income tax by investing in tax-advantaged accounts such as 401K and Health Savings Account. That helps you (1) invest your money and (2) save your money on taxes. You have an even bigger advantage in using a 401K if your employer offers 401K matching. That is a guaranteed return on your investment and you would be leaving money on the table by not taking advantage of this employee benefit.

Action Item:

• Check if your employer offers 401K matching and invest to get the full matching amount
• Explore other tax-advantaged accounts to reduce your taxes now like HSAs
• If you would like to pay less taxes in the future, explore post-tax advantaged accounts like a Roth

Pro-tip: your HSA doesn’t expire. Your funds are available to you anytime, now or in the future. Therefore, you can use your HSA account as an investment account , allowing your money to grow tax-free, and you can reimburse yourself years later for medical expenses. HSAs are triple tax-advantaged accounts because you get a tax deduction on the amount you deposit, your money grows tax-free, and you can withdraw it tax-free for medical expenses.

12. Review Your Insurance Policies

Reviewing your insurance policies is a critical step to ensuring your assets are protected against unexpected risks. This is especially timely given the devastating California wildfires that upended the lives of countless people.

Action items:

• Learn about different insurance policies available (e.g., life insurance, car insurance, umbrella insurance, accident insurance, house insurance, etc) and assess your need for each of them.
• Look into your current insurance policies and understand how much your assets are covered. Study the situations where you will be compensated vs not.
• Consider bundling different policies with a single provider to get a better price
• Research and select a reliable insurance provider. You want a provider that will fulfill their agreement and repay you for lost assets.

What financial goals will you pursue this year?