12 Best Personal Finance New Year’s Resolutions
Facing the new year can be both restorative and anxiety provoking. It has become a cultural expectation to have resolutions at the start of each new year. Often these resolutions are marked by fitness expectations, dietary goals, and financial aspirations. Though goal creation can be great, if it is not framed correctly, it can set you up for failure. This year, focus on achievable goals. From budgeting to starting a side gig. Here are the 12 best personal finance new year’s resolutions!
Table of Contents
1. Create a budget
This has to be at the top of the list for many reasons. An honest and transparent budget is the foundation that financial success is built upon. How can you know what is possible with your money if you do not know where it is going. Creating a budget is not only an incredibly important resolution, it is pivotal to anyone looking to reach their financial goals.
Some individuals use shared spreadsheets. Others use budgeting apps. Some do nothing at all, unfortunately. This year, take control of your finances and create a comprehensive and exhaustive budget. If you are looking for a place to start…then look no further! Fortunately for you, The Motivated M.D. has already created a FREE budgeting spreadsheet that I offer to anyone who subscribes to our newsletter. You too can get this budgeting tool for free simply by providing your email address using the sign-up form located at the bottom of this post! Budgeting tops the list at #1 on our list of the 12 best personal finance new year’s resolutions. Don’t wait another moment, sign up and get your perfect budgeting spreadsheet today.
2. Build an appropriate emergency fund
OK, ok, I know what you are thinking…another tirade about the importance of emergency funds. I may be slightly biased because I had to lean on my emergency fund frequently in 2022. Don’t believe me? Just check out my guest post on The White Coat Investor titled My Emergency Fund in Action or a more recent post Life Happens. Both of these highlight the importance of an emergency fund when the unexpected arrives.
For me, an appropriately sized emergency fund is generally between 3- and 6-months living expenses. I mean everything. Hence the importance of a solid budget (as I alluded to above). If you already have a comprehensive budget, then you have an idea of your monthly expenses. For those that do, you can use this to determine how much you need saved in a liquid emergency fund to cover 3 to 6 months expenses. This will help guard against financial disaster should an unforeseen expense arise (i.e., car accident, unexpected unemployment, HVAC failing, etc.)
If you would like to know more about the creation and utilization of an emergency fund, make sure to check out Emergency Fund: Your First Financial Goal. Guarding against financial disaster is a close second on our list of the 12 best personal finance new year’s resolutions.
3. Create or review your financial plan
A well written financial plan is critical for keeping you on a trajectory towards financial success. With this new year, focus on creating a comprehensive financial plan. For individuals who have not written a financial plan before, look no further. Here is an exhaustive post I created previously called How to Write a Financial Plan. This article highlights both the importance and philosophy behind financial plans. A financial plan is a blueprint one creates that outlines their current and future goals for their income. From how one saves for retirement to debt elimination and investing, it is all described in this document.
For those who already have a financial plan, it is healthy to return to it at least annually. Perhaps you review your plan and see no modifications necessary…great! This likely means you are executing your plan appropriately. However, jobs change, reimbursement changes, loans and mortgages get paid off. As this occurs, not only can you revel in your achievements, but you also have the opportunity to make adjustments to your plan if necessary.
This year, I encourage everyone to either create a financial plan, or review their existing one. Each and every new year is an opportunity to make sure you are on track to meet your goals. If not, see how your financial plan can help you get back on the road to financial freedom.
4. Max out your retirement contributions
This one is a no brainer. It is vital that you max out your retirement contributions with each passing year. Use this fresh start to make sure you are contributing the maximum into your retirement account annually. It is also important to recognize that some employers offer contributions to your retirement savings too! This is referred to as an employer ‘match’ and it is essentially free money! Commonly, you have to contribute a certain monetary amount to your retirement savings and your employer will deposit a predetermined amount, thus ‘matching’ a portion. Let’s be clear here…this is free money.
Failing to contribute enough to get your employer match is literally leaving money on the table. Do not be so foolish as to leave this unobtained. Prioritize your retirement contributions with each paycheck…make it automatic (more on that later). Every dollar your save now is put to work for you. It immediately is put to work building compounding interest to make sure you continue to stride toward your retirement goals. Further, the money you contribute now is more important than the money you contribute tomorrow (or 10 years down the road). This is because the money you contribute now has more time to compound. So why wouldn’t you want to make sure every single dollar you are allowed to save is put to work?! New year, new you…get the ‘match’, and max it out!
5. Pay down your student loans
Your student loans are keeping you poor. It is as simple as that. I understand completely those who pursue Public Service Loan Forgiveness (PSLF). To those of you who are, I commend you and offer nothing more than the guiding charge to ‘stay the course!’ However, for so many others who have refinanced their student loans, or wish to relieve themselves of the burden of educational debt as fast as possible…then make this your year. Get a plan in place and destroy your debt as fast as your finances allow.
My wife and I paid off $209,000 over the past two years primarily through living below our means and making debt elimination a priority. Though there are many avenues one can pursue when it comes to loan repayment, it doesn’t make the debt anxiety less cumbersome. I am profoundly debt averse, therefore, refinancing as often as possible and putting all my extra income towards debt brings me joy. This year, write your financial plan and outline your loan repayment goal. The sooner you tackle your debt, the closer you are to true financial independence.
6. Complete your backdoor Roth IRA conversions
For physicians already maxing out their retirement contributions, backdoor Roth IRA conversions can be another vehicle to grow your nest egg. Roth IRAs are income gated. For high-income earners like physicians, the Roth IRA is enticing as you are taxed upon contribution, then that money is allowed to grow post-tax. This is beneficial because physicians are often taxed at higher rates as their income grows throughout the course of their careers. When retirement rolls around, they are subsequently able to withdraw this Roth IRA savings without suffering taxes.
Backdoor Roth IRA conversions are not an investment vehicle per say, but more a savings strategy. The idea is that you place savings in a traditional IRA account, then before the money has time to accrue interest, you convert it to a Roth IRA account. This is an oversimplification, but you get the gist. There are many important factors to know and understand before you pursue performing a backdoor Roth IRA conversion. I have written about them extensively in this guide called How to Do a Backdoor Roth IRA Conversion. However, given the complexity of this strategy, I always encourage and recommend that you consult a professional if you have any questions or concerns.
With that said, backdoor Roth IRA conversions are another pathway to grow your nest egg with each new year. Many individuals perform their conversion on January 1st as the conversion is tied to the fiscal year. If you are looking for other avenues to save, performing your backdoor Roth IRA conversion can be just the boost your new year’s resolutions need!
7. Automate your finances
With a new year hopefully comes a new financial mindset. I have realized that often our emotions get in the way of logical and intelligent choices. That is no exception when it comes to personal finances. Therefore, one of the best new year’s resolutions I can recommend is regarding automating your finances. From your retirement contributions to your loan payments and beyond, everything should be automatic.
For me personally, I make the majority of my prioritized expenses automatic. This includes (but is not limited to) maxing out my retirement contributions, contributing to my Vanguard index funds, saving for the holiday season, and paying down my student loan debt. Each of these payments/expenses are deducted without my input. This not only takes a responsibility off my plate, but simultaneously helps me reach my financial goals. This year, work to remove yourself from the equation and make sensible payments and savings automatic.
8. Start a side gig
A side gig (or side hustle) can be critical for creating supplemental income and launching you towards financial freedom. Not all side gigs are lucrative, but the education gained in pursuit of entrepreneurship is priceless. For me, I have taken up blogging as my side gig. You can read all about my journey simply by navigating to the My Physician Side Hustle series! I try and show the physician community How to Make Money Blogging as a Doctor! I am so passionate about this idea that I have written multiple posts on the importance of generating multiple streams of income as well as the 10 Best Physician Side Gigs!
A side gig is more than a means of income generation. It also can help you gain particular business skills, explore an interest or passion, and expedite your financial freedom. There are many reasons why I encourage everyone to consider pursuing a side gig. The more I have grown my business the more I realize the importance of starting now. The longer you wait, the longer it takes to find what makes your side gig valuable and successful. Do not be afraid to fail. Failure is part of the journey. If you have the time, interest, and grit, then make this the year you start your business.
9. Build passive income revenue streams
Part of the reason I advocate so fiercely for the pursuit of a side gig, is it can evolve into a means of passive income generation. I will be the first to tell you that the majority of ‘passive’ income ideas are rarely passive. Like many great things in life, it takes time, effort, patience, and persistence to find success.
However, for those with a hunger for income creation, then there are many passive income ideas just waiting for you. I have also written a post on the 8 Best Passive Income Ideas for Doctors that I recommend you check out. Here you will find some of the best ways to use your medical education as a platform to build supplemental income. Many of the passive income ideas on this list can be turned into real businesses. These revenue generated can potentially offset your clinical need, increase your income, and hopefully prevent clinical burnout.
If you wish to know more about the importance of passive income as a means of diversifying your revenue streams. Then check out The Importance of Multiple Revenue Streams. Akin to the wisdom found in diversifying your investment portfolio, there is financial security for those who diversify their income. Use the new year to cultivate various income streams and you will guard against financial disaster.
10. Save for the holidays year-round
The holidays are a joyous time, but the giving season can place pressure on our budgets. We over-extend our finances by buying gifts and spreading cheer. There exists an intersection where saving and budgeting for the holiday season meets our gifting goals without causing anxiety. For this reason, I recommend saving for the holidays year-round!
As I alluded to previously, I make automatic deductions monthly towards multiple investments, savings, and payments. One of those savings includes holiday savings. I have broadened this to include our annual HOA dues as well as our greeting card expenses. I calculate how much I plan on spending total for family gifting, then add the cost for our holiday greeting cards (production and shipping), and our HOA dues, then divide by 12 (months of the year) and thus I have my monthly savings expectation.
This approach to the holidays has drastically altered my level of financial anxiety during the winter months. Now I can approach December without a care in the world. There is comfort knowing that there is a pool of savings already set aside to address the seasonal expenses. This year, proactively take the anxiety out of your life and save a small amount each month in preparation for the season of giving. No matter what holiday you celebrate, this one habit alone will save you a months’ worth of worry!
11. Fund a philanthropic cause
It is funny how this resolution came subsequent to saving for the holidays. I think a philanthropic cause offers many financial, mental, and emotional benefits. Look, giving to those in need feels good. It doesn’t need to be more complicated than that. Chasing this exact feeling is why I am working to create a Vanguard donor advised fund that allows me to give a portion of the revenue I create towards a charitable cause. It is a way for me to give back for the success that The Motivated M.D. has found, and I am grateful.
However, there are other benefits to giving as well. Certain charitable/philanthropic contributions are tax write-offs. This can be an avenue to intelligently optimize your tax deductions. Lastly, I personally think it is important to give your success a ‘reality check.’ I do not seek to go on a soapbox about the ‘have’s and have nots,’ but suffice to say, philanthropy offers a sense of existential grounding that can be hard to appreciate in the day-to-day grind of life. Philanthropy is one of the most important resolutions on our list of the 12 best personal finance new year’s resolutions. Take this year to make a commitment to give to a cause you are passionate about. It will make you feel good, I promise.
12. Reframe your financial goals
The last new year’s resolution on this list is primarily directed at the ‘milestone mentality.’ I have written a lot about goals, achievements, and milestones. However, I understand how life happens. The world has a way of placing obstacles in our path. How we navigate these challenges speaks volumes about our ability to persevere and adapt.
This year will 100% introduce new and unexpected challenges. That is a fact. All you have control over is how you personally choose to deal with these ‘opportunities.’ Fortune favors those who are willing to course correct and not let their emotions keep them from their long-term goals. This year, if you don’t quite hit your savings goal, that is OK. If your side gig doesn’t take off like you hoped, that is OK too. Not everything will go as planned, but the education you gain in pursuit of these goals is just as important as the goals themselves. Do not beat yourself up. Celebrate your successes and reframe your failures. Last but certainly not least on our list of the 12 best personal finance new year’s resolutions is reframing our goals.
Take home points
There you have it! These are the 12 best personal finance new year’s resolutions for this year. I hope you have enjoyed each and every one of them. Inside each resolution is another avenue for education and achievement. Use the fresh start of a new year to get your finances in order. This will not only allow you to take control of your money, but will allow you to take back your life too! As always…
Stay motivated!
The Motivated M.D.
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