How to fix your finances before 2019
February 28, 2019
Ah, the new year. A time for parties, champagne, and questionable decisions made because of the aforementioned parties and champagne. Before you say goodbye to 2018, there are four things you can do this weekend to make sure that your finances are best positioned for 2019.
Let’s take a look.
#1. Set a SMART financial goal
Did you know that 80% of people who set New Year’s resolutions will fail, according to?
That’s because traditional goal setting is awful. It focuses more on vague ideas than concrete, measurable systems that’ll help you achieve your goals.
The solution: SMART goals.
SMART stands for specific, measurable, attainable, relevant, and time-oriented. A good goal has each of those elements.
Here are a few examples:
Typical New Year’s resolution: I want to make more money.
SMART goal: I want to earn $100 / month from freelancing by June.
Typical New Year’s resolution: I’m going to save more.
SMART goal: I’m going to invest $50 / month into my Roth IRA for a year.
Typical New Year’s resolution: I want to buy a house.
SMART goal: I’m going to put $XXX / month into a dedicated sub-savings account until I have enough for a house down payment.
Do you see the difference between the vague, crappy New Year’s resolutions and the SMART goals? The SMART goals are more focused. They have a clear way to measure success. More importantly, they outline a system to get things done.
And they’ll help you accomplish any financial goal you have this year.
#2. Rebalance your portfolio
As Ramit Sethi, IWT’s CEO and author of I Will Teach You To Be Rich, says: Asset allocation is the most important element of investing.
If you don’t know what asset allocation is, that’s okay! All it refers to is how you divide your investments among asset categories — the biggest ones being stocks, bonds, and cash. Making sure your asset allocation is in line with your goals is very important when it comes to investing.
Your goals are going to be specific to you. However, there are a few good rules of thumb when it comes to asset allocation. It all has to do with how old or young you are.
Younger investors have more time before they retire. That means their asset allocation can take on riskier investments such as stocks. You’re going to be more likely to lose money with stocks than bonds; however, you can also gain more too.
Older investors have less time before they retire. That means they might want an asset allocation that’s more conservative. An older person’s portfolio, then, will contain more bonds since those are safer investments.
And a crucial part of keeping your assets in order is regularly rebalancing your portfolio.
Let’s say your target asset allocation is 90% stocks and 10% bonds.
Target asset allocation
But you’ve discovered that over the course of the year, the amount of money you’ve made in your bonds has grown (great problem to have since your bonds made money!).
Now your bonds make up 20% of your portfolio.
Unbalanced asset allocation
To optimize your portfolio, you need to go back to your target asset allocation of 90:10 stocks and bonds. That means you’ll have to rebalance your portfolio to do so.
Remember: Asset allocation is crucial because it helps you keep in line with your goals. If you don’t rebalance your portfolio, your asset allocation might be off target. That means potentially missing out on a TON of gains just because you didn’t rebalance.
To do that, you might buy and/or sell shares in order to hit your target asset allocation. In the example above, you’re going to want to either invest more into stocks or sell some bonds in order to go back to the original 90:10 ratio.
If you want to set yourself up for potentially greater success in the new year, consider investing in target date funds. These are funds that automatically rebalance for you so you don’t have to worry about it.
For example, the Vanguard Target Retirement 2050 Fund (VFIFX) is a target date fund that assumes you’ll retire around 2050 (hence the name). Since we’re still decades away from 2050, the fund contains higher risk investments like stocks. As we get closer to the “target date” though, it’ll adjust its asset allocation to contain safer investments like bonds.
Learn more about portfolio rebalancing and asset allocation to prepare your investments ahead of the new year.
#3. Negotiate to save hundreds
There’s no skill that can save you money more than negotiating.
With just a few phone calls, you could potentially save HUNDREDS in the new year on your:
- Phone bill
- Bank fees
- Car insurance
- Credit rate
At IWT, we call this “hidden income” — the money you can save by just using a few negotiation scripts. Instead of saving money by cutting back on things you love like your daily latte, you can save by drastically lowering the price of your monthly bills.
Let’s jump into a couple things you can negotiate now:
When it comes to negotiating with cell phone companies, there’s one thing you need to remember: It’s cheaper to retain an existing customer than get a new one. They want you to remain a paying customer because the customer acquisition cost is so high. That means you have a HUGE advantage when it comes to negotiations.
Here’s how you can negotiate your phone bill:
- Step 1: Find comparable plans on other networks. If you’re using Verizon, check out what T-Mobile, Sprint, and AT&T have to offer. Compare the costs and features you’ll be able to get for each plan.
- Step 2: Call your cell phone service provider. Have the information you gathered from the previous step ready.
- Step 3: When you get contact with a cell phone company rep, use the script below.
YOU: Hi, I was hoping to save some money on my cell phone bill. What other plans do you have that would save me money?
THEM: Well, all the plans we have are the ones shown on the website blah blah blah
YOU: Do you have any plans not listed on the website?
THEM: No, what we have is listed on the website. You’re also on a contract right now and have an early cancellation fee of $XXX.
YOU: I understand that, but I’d be saving $XXX even with that cancellation fee if I switched to [COMPETITOR COMPANY’S PLAN]. I’m looking to save money in the next year, so unless there are any other plans, can you switch me to the customer retention department please?
What is going to happen now is you get switched to their “customer retention” department. These are people in the cell phone company whose job is to throw a bunch of free deals at you in an attempt to get you to stay. When you get transferred to them, stay on the line and ask for the same thing you did before.
So many people pick a car insurance plan and never consider the rate ever again. But if you put in a little bit of time prepping a negotiation plan, you can save hundreds of dollars each year.
- Step 1: Find out how much coverage you need. See if you have the right amount of coverage for your car insurance and, more importantly, if you have too much.
- Step 2: Find your current plan. Get the information in front of you via your car insurance company’s website or call them up and ask what your plan is.
- Step 3: Shop around. Use a rate comparer tool to compare car insurance plans.
- Step 4: Call your car insurance agent and ask the following questions:
- “[COMPETITOR COMPANY] is offering to insure me for $XXX less. What can you do for me?”
- “What can you offer me as a discount for long-term membership?”
- “If I enrolled in a defensive-driving course, what kind of discounts would you offer?”
- “Other companies offer discounts for features like anti-lock brakes. What about you?”
- “Can I save money by pre-paying my entire year up front?”
With these questions, you’ll be able to unlock a lot of hidden savings for your car insurance rate.
#4. Automate your finances
If you want a painless way of saving, investing, and paying off your bills in the new year, you need to automate your personal financial planning.
And it’s simple: At the beginning of each month when you receive your paycheck, your money is sent to where it needs to go because you’ve set it up that way.
This works by leveraging psychology. Humans have a very limited amount of willpower to use throughout the day. That’s why things like giving up lattes to save money don’t work out in the long run. It relies too much on willpower and gets depleted very quickly.
However, if you have a system in place that automatically does the saving and investing for you, you don’t have to deplete any willpower! This gives you a much better chance of accomplishing your money goals.
If you want to learn exactly how to set up your financial system, I have a gift for you: A 10-minute video where Ramit breaks down his process for automating his finances.
This system helps you start your new year off on the right foot. The best part: It can all be done in a single weekend.
Just enter your name and email below and I’ll send it straight to your inbox.
I want to learn how to automate my finances!