2021 just ended, and it is the start of a new year.  It is a time for people to set resolutions and to take stock of things in their life.

There is nothing magical about the start of a new calendar year, but if it helps us step back and look at the important things in our lives, then we should embrace it.

For New Year’s resolutions, I like to stress that the actions are more important than the results.  You shouldn’t have a resolution to lose 15 pounds.  It is a better resolution to have a contract with yourself that you will, say, exercise at least three times per week, or that you will eat at least two servings of vegetables every day.

The same goes for any other resolutions, including your finances.  The reason actions are important is because you can’t always control the results.  You could say that I want to get a significant raise at my job this year, but what if your boss isn’t in the mood, or your company doesn’t have the money, or we hit a hard recession and it just isn’t possible?  It is better to commit to specific actions that will lead to higher productivity and being a great help to your company.

With personal finances, there are many things we can’t always directly control, including income.  We can’t control the return on our investments, especially if those investments include stocks or other assets that can go up or down in value.  We can’t always control our expenses, as sometimes there are surprise expenses.

We can control what we can control.  We can control how much we go out to eat, how many subscriptions we have for movies and shows, and what car we drive.

We can generally control how much money is directed towards a retirement account or an HSA account, assuming that there is enough left over to pay the bills.

Maybe there are other small specific things that can be done too.  Personally, I have noticed that my cable/ internet bill has crept up.  I probably need to call (which, admittedly, is a little torturous) and find out if I can lower my bill.  Sometimes they will just do it without me giving anything up.  If it saves me 20 dollars per month, it will add up over time.

The big expenses such as the mortgage/ rent and transportation are important to assess when you first get into them.  And sometimes changing some of these big items are necessary.  But for most people, improving their finances will come from making small but not insignificant changes.

Again, if you make a resolution to improve your personal finances, make them specific and actionable steps.

Taking Inventory

I am not good at always doing this, but I think the end of the calendar year is a good time to calculate your net worth.  This should be documented on paper.

The year end is a good time because it is easy to remember, and you will likely have year-end statements for your accounts, which can make it easier.

You should do it line by line for each account.  You don’t have to write out each stock and mutual fund that you own, but you should break it out by accounts.  If you have a 401k and a Roth IRA, these should be separate line items.  You will have a separate line item for different brokerage accounts, bank accounts, and any assets that you own.

If you own a house, I would calculate your net worth with and without your house.  Of course, you should only count the equity in your house (estimated value less the principal balance on the mortgage).

When it comes to other things like a car, it is probably best just not to include it.  While it is certainly better to have a car that is paid off versus a car with a loan, it is typically not significant enough to worry about.  You probably aren’t planning to sell your car and not buy another one.  If you don’t have a loan on it and you aren’t going to get another car any time soon, then you will benefit by not having that expense in the future.

If you own any cryptocurrencies, precious metals, or any kind of collectible that is worth something significant, then these should be included at the approximate year-end value.

Perhaps this all seems to go against what I wrote above – that you should worry more about actions than results.

It is the actions that drive the results.  So you have to make sure you are taking the actions, because that is what is in your control.  But you still have to measure your results from time to time.  If you go over a long period of time and don’t get good results, then you may have to take different actions.

If you go to the gym four times a week but you haven’t lost any weight that you were hoping to lose for the last year, then you probably have to look at your diet and possibly other factors.

If you don’t take action, then there probably isn’t much point at measuring any results.  If you do take action, then you have to measure the results from time to time to see if you need to adjust your actions.  This can be true for weight loss, getting a raise, increasing your net worth, or any number of other things in life.

The start of a new calendar year may be somewhat artificial, but it is a useful time for many to measure their results and to adjust their actions as needed.

Here is to a healthy and prosperous new year.