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Happy New Year!
Have you made your New Year’s Resolutions for 2020 yet?
If you said yes, have you broken your 2019 New Year’s Resolutions yet?
I usually wait until mid-to-late January to break mine, but I’d like to give you some achievable New Year’s Resolutions that you can keep. Each of these eleven items will help you improve your financial situation, and most of them are something you can do, check off the list, and move on.
I’m not asking you to make any drastic changes in habits, like my good-beer-loving friend across the pond who gave up beer for a year in 2019 and will be celebrating his achievement in style in 2020.
Last year, I published a list of ten resolutions, but this year’s list goes to 11.
Top 11 Financial New Year’s Resolutions to Make (and Keep) in 2020
#1. Calculate Your Net Worth
This is a great place to start. If you want to set financial goals for yourself, it helps to know where you’re at, first.
It’s not a complicated equation. You add up your assets, subtract your liabilities, and the result is your net worth.
People get hung up on what should and shouldn’t be included. Vehicles? Jewelry? Art? Football cards? You can get as specific as you want, but if it’s a depreciating asset and/or its value is < 1% of your net worth, I wouldn’t bother counting it.
I’ve got lots of football cards and other junk. Any jewelry my wife owns has more sentimental than monetary value, and that monetary value is a drop in the bucket compared to our invested assets. Our vehicles might be worth $30,000 combined, but they cost money to operate and will depreciate as we use them. I don’t count any of it when I calculate our net worth.
I do count the value of all our investment accounts and properties owned.
We’re debt-free, but if you’ve got mortgage debt, student loan debt, credit card debt, or any other debt, those go in the liabilities column.
I don’t have a pension coming, but I should receive Social Security eventually. I don’t include this in my calculation, but if you’re near retirement and your pension or Social Security appears to be a sure thing, you can find a calculator to estimate the value of that benefit as a lump sum in today’s dollars if you so choose.
I do count the value of my home and any money set aside for college (529 Plans) in my net worth, but not in my retirement assets. If you’re married with combined finances, you should be looking at your net worth as a family, as we do.
The fine details aren’t all that important. Just figure out where you stand today and monitor that number at least annually to ensure you’re headed in the right direction.
Passive Income MD recently asked, “Should You Track Your Net Worth?” My answer is yes.
#2. Track Your Portfolio
Again, we’re just wanting to figure out where we’re at. What do we own? In which accounts? How are these investments performing?
You may have investments in a half-dozen places: IRA, 401(k) or 403(b), HSA, 457(b), 529 Plan, cash value life insurance, defined benefit plan, etc…
It’s helpful to look at everything at a glance in one place. I do this in two ways, and I suggest you do one or the other or both.
First, I use a spreadsheet. I manually enter each of my assets and the account in which they’re held. At least once per quarter, I update the value of each asset. I’ve set it up to calculate the overall asset allocation across the board and tell me which classes are underweight or overweight compared to my desired asset allocation. It helps with rebalancing and looks pretty.
The downside is that it took a lot of work to set up and takes some work to update. I can save you the setup work by giving you a universal portfolio tracking spreadsheet. It’s up to you to enter your funds and the asset classes they’re holding, but the sheet will do the rest.
Enter your email, and I’ll send you a copy. I’ll also send you new emails alerting you to new posts, but you can opt out of those and into a weekly digest or opt out entirely as soon as you’ve got your sheet. No hard feelings.
Second, I use Personal Capital to see what’s happening across my accounts on a more regular basis. On any given day, I can log-in to see my current net worth, asset allocation in greater detail, overall performance among all accounts, within each account, or for each asset.
It’s got a fee analyzer to show what you’re paying in 401(k) fees and a retirement calculator to show if you’re on target to have a successful retirement (I am!).
Personal Capital pairs very well with the spreadsheet because it will log in to all of you accounts and display all of the balances on one screen, making updating my spreadsheet so much easier.
They do have an advisory service that costs money — I don’t recommend it — and they will advertise that service to you if you sign up and use the free financial software. There’s a reason they can offer such a robust service “for free.” They do make good money off a small percentage of people who sign up and choose to use them as a financial advisor.
Nevertheless, I have been happy using the website and app for the last five-plus years. I was using it and recommending it long before I had a website of my own.
#3. Track Your Spending
Once again, if you want to know how you’re doing financially, you need to keep track somehow. Since spending is a key component of both your savings rate and your required nest egg to consider yourself financially independent, it’s important to know how much you spend on a monthly and yearly basis.
You can do this as loosely or accurately as you want. Before I had a blog, I knew what our credit card bills looked like and how much came out of our checking account for large expenses like property taxes.
Without actively tracking our spending, I knew that most months, we were spending $5,000 to $6,000.
Once I had a blog, I started tracking it more closely to prove to the world and myself that we were indeed financially independent. What I learned was confirmative. Using Mint.com initially and Personal Capital more recently, I’ve learned that our expenses are indeed in the range of $5,000 to $6,000 a month.
Now, I have a better idea of where the money goes, broken down by category. You can see my last two annual spending reports below. I didn’t write one up for 2018 or 2019 because I could see that our spending was remarkably consistent and stopped keeping close track.
Now that we’re on the hook for health insurance, I anticipate spending closer to $80,000 a year.
When you pay closer attention to where the money goes, you can more easily identify areas in which you could potentially save money, and you can ensure that your spending is well aligned with your priorities. If you haven’t before, start tracking your spending in 2020.
#4. Write an Investor Policy Statement
It sounds fancy and complicated, but this is something you should be able to accomplish fairly quickly. It can be as simple as you’d like it to be.
Start with a desired asset allocation. List the accounts you’ll be investing in. You can build it out from there.
Being closer to retirement, I’ve included some basic elements of our drawdown strategy. While unnecessary if you’re decades from retiring, it’s a good idea to start thinking about how you’ll be accessing your hard-earned money when you do need it eventually.
If you’ve already written an IPS, an annual review is a good idea. The tax code changes; sometimes your job or income changes. If you haven’t looked at yours in over a year, it’s a good idea to review and perhaps revise the living document as needed.
If you need some guidance, I’ve written a few posts detailing my own IPS, why it says what it says, and how it has changed. And yes, it’s due for a review and possibly some revision.
If you want a more complete financial plan that includes not only investments, but also insurance, estate planning, asset protection, and more, consider investing in The White Coat Investor’s master course, Fire Your Financial Advisor, which will teach you what you need to know and leave you with a comprehensive financial plan.
#5. Increase Your Savings Rate
When physicians ask how much they should be saving annually, I generally recommend they try to live on half their takehome pay. In other words, save and invest as much as you spend. When it comes to student loan debt, I think of debt paydown as a form of saving and investing; you’re improving your net worth and getting a guaranteed return.
If you can do this, you’ll go from broke to a financially independent and work-optional state in about 15 years or so, depending on market conditions.
If you’ve tracked spending, you may be able to indentify money being spent that’s poorly aligned with your long-term goals. There may be some subscriptions or services that aren’t really being used or really are not necessary.
The White Coat Investor recommends a savings rate of 20% of your gross income, which works out to maybe 30% to 35% of net for most of us. If you can elevate your savings rate to the point where you’re paying off debt or investing a dollar for every dollar you spend, you’ll be in even better shape before you know it.
Make It happen in 2020.
#6. Understand Your Taxes (and what you can do to lower them).
Do you understand the difference between your effective and marginal tax rates? Have you looked over your 1040 line by line? Do you understand the Section 199A 20% deduction for qualified business income?
When you understand how your taxes are calculated, you’ll be better equipped to pay less. Unfortunately, those of us who work for a living can only do so much to lower our taxes. Earned income will always be subject to taxation, especially when you have the earning power of a high-income professional.
However, you can impact your final tax bill. Here are a few of the ways I lower my taxes:
- Tax-deferred contributions to retirement accounts.
- Charitable Giving via a Donor Advised Fund.
- Working Less / Retiring from Medicine
- 20% QBI deduction (applies to blog income, but also available to many self-employed physicians depending on income)
- Have children. The child tax credit doesn’t begin to phase out until an income (MAGI) of $400,000 for those that are married and filing jointly.
There are strategies for everyone to keep tax bills in check, but it’s particularly important for those not being paid as a W-2 employee to understand how the tax code works.
Take a look at additional posts I’ve published devoted to the topic of taxes.
#7. Optimize your Debt Paydown Plans
If you’ve got debt, make plans to pay down those debts in a way that makes sense for you. Not all debt is all bad, of course, but debt-free is a good way to be, and if you’ve got high-interest debt, you’re going to want to focus on that first.
Credit Card Debt
Credit card debt is a big no-no, and It’s going to be among the highest interest debt around. If you have credit card debt, figure out what you can do to pay it off as quickly as possible.
This may involve selling high-dollar items you’ve purchased or changing expensive plans you’ve made, but credit card debt should be viewed as a financial emergency.
Once you’ve figured out how quickly you can eliminate that debt, consider picking up a 0% APR balance transfer card. Don’t let that be an excuse to let the credit ride. Pay down the balance before the introductory rate rises. You don’t want to end up back in the same boat, which is more of a sinking ship than a boat that floats.
Student Loan Debt
Student Loan debt is another common debt among physicians and other professionals. The interest can be moderately high, and the balances are often well into the six figures.
The New Year is a great time to review your plan to eliminate student loan debt, whether it’s via a forgiveness program such as PSLF or via a rapid paydown plan.
I’ve offered to donate $50 to the charity of your choice if you refinance via my resource page. I’d love to see more people take me up on this offer.
If you’d like a professional consult, Travis Hornsby and his crew have consulted on over $750 Million in student loans for over 3,000 clients, and they frequently save their clients tens of thousands of dollars over the life of their loans. The average found savings has been over $50,000. That’s about a 100x ROI on the consult. Explore their options here.
Mortgage and Consumer Debt
Loans for automobiles, motorcycles, boats, RVs, etc… are not uncommon, either. Personally, I think a high-income professional ought to wait until they can afford to pay cash for these kind of things. A car payment does not need to be a line item on your budget. However, if you do take on debt for this stuff, make sure it’s low-interest and always pay on time.
Regarding mortgage debt, it’s not as “valuable” as it once was. With the new increased standard deduction, only about 10% of Americans will actually see a reduction in their taxes based on itemized deductions that include mortgage interest. Furthermore, interest rates and mortgage rates are on the rise.
You don’t have to make any more than your minimum mortgage payments, but you might want to add additional money to you monthly payments to pay down the principal faster.
We were 100% debt-free by the time I turned 40, and it is a great feeling. Eliminating low-interest debt isn’t always the monetarily optimal choice, but I have no regrets.
#8. Earn Easy Travel Rewards
There are a number of websites and forums devoted entirely to the world of credit card travel rewards. The amount of information can be overwhelming, leading to analysis by paralysis.
However, I’ve discovered that the Pareto principle definitely applies here. You can get at least 80% of the results with 20% of the effort.
There are a number of great offers on both travel reward and cash back cards. If you’re new to the game, I recommend starting with a Chase card that has solid perks and points that can be used for cash or often more lucratively for travel with one of many partners. The Chase Sapphire Preferred is a good option, with a $95 annual fee and an offer of 60,000 points after meeting the minimum spend of $4,000 in three months. That’s worth $750 in travel when booking through the Chase portal and potentially more when transferring points to travel partners.
Chase Bank is a great place to start, because if you’ve picked up more than five cards in two years, Chase will typically reject your application for a new card, no matter how good your credit is.
To keep track of the cards you have, their perks, and the other cards available, download my updated credit card tracking spreadsheet, which is regularly updated.
#9. Read a Personal Finance Book (or Five).
A frequent mid-career sentiment when it comes to money management is “I don’t know where to start.” I’ve written a two-part Investing Basics series, which is decent for a brief overview, but what you really need is a good book.
When I was in medical school, I read The Only Investment Guide You’ll Ever Need by Andrew Tobias. The paperback gave me good perspective and kept me from making expensive mistakes.
The best book available today for med students, residents and early-career physicians is The White Coat Investor. He’s got a great site, too, of course, but the book is well organized and can be read in a few short hours. His followup, Financial Boot Camp is an excellent complement to the first book.
Dr. Cory S. Fawcett, a surgeon who retired in his mid-fifties, has written three financial books specifically for physicians, and I’ve reviewed each of them on this site.
- Book Report: The Doctors Guide to Starting Your Practice Right
- Book Report: The Doctors Guide to Eliminating Debt
- Smart Career Alternatives and Retirement for Physicians
Finally, a couple other good, quick reads I highly recommend are Jonathan Clements’ How to Think About Money, John Bogle’s Little Book of Common Sense Investing, and JL Collins’ Simple Path to Wealth.
With the background knowledge from one or more of these books, you’ll be able to better understand many of the blog posts you read and the questions and answers you see in various online forums.
Bonus (#9.5?): Join a Q&A Forum
I’ve learned a ton from reading threads on various online forums and more recently, Facebook Groups. I strongly recommend the following:
- Bogleheads Forum
- White Coat Investor Forum
- Physicians on FIRE Facebook group (Physicians only)
- Passive Income Docs Facebook group (Physicians only)
- White Coat Investors Facebook group
- fatFIRE Facebook group
Join me — I frequent all of the above — and I promise you’ll learn a ton, too.
#10. Complete a Legacy Binder
I had to include this one because it’s high on our list. When a death occurs in the family, particularly when it’s unexpected, sorting out the finances can be a monumental challenge.
A legacy binder, or “In Case of Emergency” Binder will not only have information on insurance policies, brokerage and retirement accounts, but also how to access them, who to call, and where to find important documents.
Usernames and passwords for emails, social media accounts, and more are a part of this.
#11. Make Your First Real Estate Investment
I’ve owned a number of homes over the years and I’ve invested in Vanguard’s REIT index for years, but in the last couple of years, I’ve expanded my real estate holdings significantly and without a whole lot of effort.
Crowdfunded real estate platforms have made it easier for people like you and me to access commercial real estate and other investments. Those who qualify as accredited investors have the most options, but there are also options for everyone, regardless of income or net worth. Examples include eREITs from Fundrise and RealtyMogul.
Accredited investors are individuals with a net worth of $1 Million (excluding primary home) or an income of $200,000 as an individual or $300,000 as a couple.
I’ve made the following investments as an accredited investor over the last two years or so:
- An investment in an acre of farmland via AcreTrader
- A value-add multifamily investment via EquityMultiple
- A value-add multifamily investment via Alpha Investing
- A loan for a fix-and-flip property via PeerStreet (pending completion)
- A loan for a fix-and-flip property via RealtyShares (completed)
- An investment in the DLP lending fund via CityVest
- An investment in a student housing project via Crowdstreet
I like these investments as people with more knowledge and time than me have done most of the due diligence. That doesn’t eliminate risk, obviously, and the investments are generally illiquid over the short term, but you are rewarded for those with increased returns. For example, completed investments with Crowdstreet have given investors an internal rate of return of over 25% per year.
Now that I have more time on my hands, I am considering investing in my first hands-on rental property. I’m still not sure it would be the best use of my time, but I enjoy expanding my horizons and skill sets, even in retirement.
Best wishes on making and keeping all financial and other New Year’s Resolutions in 2020!
What Resolutions have you made for 2020? How have you fared with prior New Year’s Resolutions?
Physician on FIRE has partnered with CardRatings for our coverage of credit card products. Physician on FIRE and CardRatings may receive a commission from card issuers.