The beginning of every new year calls for action to straighten out things. A new year calls for new beginnings. In your personal life, in business and in almost all things, people often take stock and see where they can make amends or start out afresh once again. I know this is true for me and I suspect for many people as well. Perhaps that’s why making new year resolutions is quite popular, even if many people do not follow up with keeping those resolutions. Personally I set goals for the year, instead of resolutions and as the months roll by, I track these goals to attempt to meet them.
To help me create order and a unique system, I try to do these 10 things every New Year. I try to do some of the on New Year’s Day and the rest in the first week of the New Year. Not all of them are financial, but this system helps to a large extent set the tone for the year.
1. Create Goals For The Year
I try to create concise and measurable goals for the year. I love simplicity, so I don’t try to put everything on my goals list. To a reasonable extent, I try to create goals in these areas of my life: Spiritual, Family, Career, Financial, Physical, Social and Intellectual. I track these goals throughout the year, especially at the beginning of every month. Sometimes, I don’t meet all the goals on my list but monthly or quarterly reviews help to re-focus my attention on the things I need to do to reach my goals in these areas. It’s like a self-check system. This is why writing down your goals can be a powerful strategy. For example, one of my Intellectual goals in 2019 is to read 6 non-fiction and non-financial books (of course I will also read at least about 6 financial books; aim is to read a book a month).
2. Calculate Net Worth
The real measure of growth in your finances is your net worth. It simply is calculated by subtracting all your liabilities (debts, loans, mortgages etc) from all your assets (retirement accounts, investments, cash, life insurance, real estate etc). The goal is to try as much as possible to have your net worth be going up every year. You can calculate this every month (like most personal finance bloggers do), every quarter or every year. I track ours every quarter and the first of January every year presents the first time to calculate our net worth for the year. There are many net worth calculators online. Better still you can just use a financial aggregation sites like Mint or Personal Capital and let them do it for you after you input all your figures. You can try this calculator here
3. Check Credit Report
You can check your credit report from the 3 credit bureaus (Experian, Transunion and Equifax) for free once year. I usually check ours every January 1st. Even though I have creditkarma which helps me track our credit report daily and sends me monthly details, I still do this traditional practice of checking the reports myself to make sure everything is fine (I check the reports for unusual activity or any account I’m not aware of). In this our current world of credit breaches, this is the least you should do. You can check your credit report at annualcreditreport.com
4. Detailed Review of Household Trends
I’m very old school and despite all the fancy budgeting apps present these days, I still do our family budget in pen and paper. At the end of the year, I have a page where I detail all the trends for the year. These typically include total spending on different categories like how much we spent on utilities for the year, how much we spent on gas or car maintenance, our charitable giving, total savings, grocery spending etc. Every January 1st, I review these trends and compare it with the previous year. It helps provide some vital household financial statistics and helps keep some things in perspective for me
5. Rebalancing
I’m a lazy investor: I only invest in total market Index funds. I love keeping it simple. Tons of studies have shown that being a lazy investor is much more superior to being an active and sophisticated investor. So we only have a few index funds in our retirement accounts. For example, both of our Roth IRAs only have one single investment inside of it: Vanguard Small Cap Value Index Fund, VSIAX. Our workplace retirement accounts have a few total market funds and some bonds. Rebalancing, which is the art of rearranging your asset allocation of stocks and bonds back to the set allocation, is predictably very easy for me. Often times, I rarely have to do anything. If the market had shifted considerably in the past year, then I may have to do a little rearrangement here and there. I think rebalancing is overrated but some smart financial professionals have argued that it can add about 1% to your total returns over your investing lifetime. So I do it when it is necessary, on every New Year’s Day. If there’s not much changes in our set asset allocation, I just leave everything alone
6. Review Insurances
Once you buy your insurance, the natural thing is for most people to lock it in and forget about it for a long time. Bad idea. Sometimes, shopping for your insurance across different companies can show you some huge savings. Every January 1st, I try to review our insurances: Auto, Homeowner’s, Umbrella, and even our Term Life Insurances. When I compare rates and find significant savings between our current company and another, I make the change. This is why using a captive agent of one single company as your insurance broker is not a good idea. It’s best to shop across several companies and find the best deal and savings for you.
7. Contribute to Roth IRAs
I love the Roth IRA. It’s not a secret, it’s my favorite retirement account. I think it’s the best retirement plan in the country. In 2011, I asked a financial adviser if I could open one and he told me I could not because I was still on H-1 visa and that I could only open one when I got my permanent residence. Knowing virtually nothing about personal finance and investment at that time, I believed him. About a year later, when I was beginning to acquire some knowledge myself, I researched and saw that I could actually open it even with my H-1 visa status. It just took a few minutes online on E-Trade and I opened a Roth IRA (I have since transferred the account to Vanguard). I’ve never looked back since then.
Since the past 2 years, I’ve decided to fund our Roth IRAs every January 1st (technically by January 2nd since the 1st is a holiday and businesses are closed that day). I save all through the year to get the maximum amount and then dump it in one fell swoop in January. This way, it gets exposed to the market all year through. Investing early is one of the best ways to invest.
8. Review Estate Plan
Technically, I’ve not done this before but I intend to add it to my to do list every January. Estate planning always takes the back burner but I’m determined to shake off that inertia and do something about this going forward. A simple Will can be obtained online, but because this is one area of personal finance that is least exciting to me, I may eventually have to get an Estate attorney to help me do this, then every January, I will look at any changes that may be necessary depending on our family situation
9. Document Assets Inside the Home
In 2018, thousands of home were completely destroyed by fire in California. Many of the homeowners did not have the time to remove valuable things from the home. There are also stories of homes being destroyed by hurricanes or other types of storms. These events, while rare, can be devastating. One of the headaches associated with losing a home is fighting with the Homeowner insurance company in rebuilding your home. Assets inside the home are supposed to be covered too. However when you don’t have a record of all the assets inside your home, how do you argue with the insurance company to reimburse appropriately? This is where documenting the assets on video comes in. I stole this idea from Clark Howard. So, every January 1, I try to make a video of the major assets inside the house. You can use your camera to do this short video. Ideally, you can store it electronically or online where fire or water will not destroy it.
10. Call Loved Ones
This includes family and friends. The frenetic pace of life guarantees that you tend to forget to keep in touch with some beloved family members and friends throughout the year. Often times, I find that I have not talked to some close friends or family members in over 6 months! It is not by design. Life happens. New Year’s Day affords me an opportunity to start on a clean slate again. Social interactions is one of the reasons why we can live longer. No man is an island. If you stay alone and keep to yourself all year long, you can get bogged down with depression. Social interactions are vital for happiness. So every 1st week of January, I make an attempt and scroll down my phone list to see those I have not talked to in a long while and try to catch up. After all, like Suze Orman says, “It’s people first. Then money. Then things”. Hopefully, this sets a position motion to periodically reach out through the year to those I have not spoken with in a long while.
So do you have a system that you use every new year? Do you do any of the above on New Year’s Day? Comment below