Happy New Year!

For some reason, the new year is seen as an opportunity to start fresh.  You can’t necessarily make all of your past mistakes vanish, but it is an opportunity to at least get on the right path going forward.  Whether it is losing weight or saving money or spending more time with family, you can make corrections to improve your situation going forward.  Hopefully your past mistakes aren’t so bad that they are impossible to correct.

It is not entirely clear why the new year brings a sense of starting over.  January 1 is just another day in your life, although often a holiday from work for most people.  You could just as easily make corrections to your life on July 1, or really any other day of the year.  So if you are reading this on a day other than January 1, you can still make corrections to your life for the better.  This sounds obvious, but sometimes we need to be reminded of the obvious.

One of the marks of the new year is the New Year’s resolution, at least for Americans. This often means just trying to get into good habits.  It means doing something that you should have been doing all along.

While I think goals are good, I also think it is important to set controllable goals.  If you want to lose weight, don’t make your goal to lose 20 pounds.  Or if that is your goal, it should only be your broad goal.  You have to be more specific to make sure you are taking the correct actions.  Your goal could be to consume no more than a certain amount of sugars and carbs per day.  Your goal could be to walk around your block at least twice per day.  You control these specific outcomes.  You don’t fully control how many pounds your body loses each week.

If you are trying to make more money, don’t make it a goal to get a 20% raise this year.  You are not fully in control of this goal. Maybe the economy will turn down. Maybe your boss won’t recognize your hard work, or maybe it just isn’t in the company’s budget.  Instead, set goals that could possibly lead to getting that 20% raise.  Set a goal of producing more at work, or showing up 15 minutes earlier every day.

This is not just true of New Year’s resolutions but for any goals.  You want to be in control of your action steps, and you don’t want to feel like a failure if your goals aren’t met.  You can’t control if your boss is a jerk and doesn’t want to give you a raise even though you are producing more than your peers. You can control what you can control.  And if you take specific action steps, then they are likely to eventually lead to something good, assuming you set up the right action steps.

A Financial Review

I think the new year is also a good time to do a review of your finances.  This is what I have done in the past.  And I know I could do it on July 1 or any other day, but it just makes sense to do it on January 1.  This is when I get year-end statements, and it is a time that is easy to remember.

If you are doing tax planning, you may have to do that before January 1, but that is one small piece of the puzzle.

The new year is a good time to reflect on your budget (if you have one).  It is a good time to assess where your money is going and what you are getting value from.  If you have a monthly subscription for something, are you getting your money’s worth from it?

With your year-end statements, it is a good idea to calculate your approximate net worth. If you own a primary residence, you can calculate your net worth with and without the equity.  I wouldn’t count most of your tangible things in your net worth.  Even with a car, I generally wouldn’t count it.  You certainly shouldn’t count things such as furniture and electronics, as they are consumption items that you probably aren’t going to sell.  And if you do sell anything, it probably isn’t worth much, and you are probably just replacing it with something more expensive.  There are exceptions with certain collectibles or things you could easily sell and not replace.

Since you are looking at your finances, it is also a good time to make any adjustments that you have been meaning to do or that should be done.  If you have to reallocate your portfolio, go ahead and take care of it.  If you have been meaning to open up a higher yield savings account, don’t keep procrastinating.

Important, But Not Urgent

Personal finance is one of those areas that people tend to neglect far too much.  It is one of those items that is not urgent, yet important.  We take care of the things in our life that are urgent and important.  We also take care of things that are urgent but not that important.  But we forget, or tend to neglect, the things that have no urgency, yet are highly important.

Imagine if Tom Clancy had not started writing because it wasn’t urgent at the time.  Imagine if Steve Jobs had waited to start Apple because he had some other seemingly important things to take care of at the time.

When it comes to your personal finances, or really anything else, don’t let non-urgency be your enemy.  Don’t look back 30 years from now and say, “Gee, I really probably should have set up that Roth IRA and put some money away.  I could be a lot richer now if I had taken a few minutes and done that.”

Stephen Covey wrote about the urgent vs. the important.  If you are going to make one resolution this year (and forever), I think it is a good idea to remind yourself to focus on things that are important but not urgent.  You typically don’t need to remind yourself of the things that are urgent.  This is true of personal finance and most other areas of your life.