3 Ideas for Getting in (Fiscal) Shape in 2017

Want to get in better shape physically, or fiscally? Money related New Year’s resolutions actually outnumber weight related ones, according to New Year’s Resolution Statistics from Statistic Brain Research Institute. In my former paycheck provider’s (Fidelity® Investments) eighth annual New Year Financial Resolutions Study, the top resolutions for 2017 were to:

  1. Save more - 50% of respondents
  2. Pay down debt - 28%
  3. Spend less - 16%

Those don’t strike me as particularly surprising, but it is interesting that three times as many people want to save more versus spend less. It seems to me that if 50% of the people making resolutions committed to spending less, they would wind up paying off their debts faster. Thus, they would also be able to save more money.

Spending less, however, is hard for most of us. It always seems so easy, in our heads. Cut out the coffee store latte and make a pot of coffee at home. Cook dinner instead of eating out. Take the leftovers to work for lunch the next day. What these things have in common is they require us to change our behavior, much like diet and exercise are part of losing weight.

Change is hard, as illustrated by another Statistic Brain nugget, only 9.2% of people surveyed felt they were successful in achieving their New Year’s resolution. If you or someone you know is looking to get in better shape financially, I’ve got a few tips that shouldn’t require much sacrifice.

Per the US Department of Labor Bureau of Labor Statistics, in their Consumer Expenditure Survey, a 2015 household earning between $150,000 - $199,999 had an average after-tax income of $139,555 and expenses of $113,272. Given peoples’ propensity to want to save more versus spend less, the following ideas should allow for less debt and more savings without sacrificing too much spending.

Pay your highest interest rate debt
First, if you don’t pay your debt balances in full each month, focus on paying off the highest interest debt you have each month. As that is paid off, apply those payments to the next highest interest rate debt, and then the next, and so forth until you are debt free. Once you are out of debt, or at least have it under control, you can then focus on your savings.

Use a cash back rewards credit card
The next idea also relates to credit, and it requires some discipline due to the usurious finance charges most of these products charge on unpaid balances. But if you can and do pay off the balance each month, a cashback rewards credit card can be a great way to save some money without making much, or any, cuts in your spending.

There are many choices, some that will suit some people better than others. The more straightforward options pay the same percentage on all purchases while others may offer higher rewards in certain categories. If an average $150k income household could put half of their purchases on a card that pays a 2% cashback reward on all purchases, it would equate to about $1,400 a year in cash back.  

Depending on your spending habits and patterns, choosing the right card can result in even more rewards. If miles, hotel stays, or other rewards are more your thing, just remember to set aside the monetary equivalent of those rewards to add to your savings. Nerdwallet is a great place to check out many of the different cash back offers, as is the Points Guy if the travel reward cards are more appealing.

Seek out lower cost investments
The last idea doesn’t require much discipline, but it will use some of your time. Take that time to understand what you are paying for your investments and seek out lower costs alternatives, especially those in your 401(k) or other retirement accounts. A great example of the impact of expenses is included in the Department of Labor’s “A Look At 401(k) Plan Fees”:

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

If you no longer work at an employer with a high cost plan, rolling the account over to a lower cost plan or IRA can make a big difference. Similarly, if you rolled a retirement account over after leaving an employer and invested it in a high fee IRA or annuity, it will probably make sense to review the fees and seek lower cost alternatives.

If you have one or more of these old plans and would like to review them, get in touch for a free consultation. That’s a resolution that will easy to stick to.