Eight New Year’s Resolutions To Help You Become Smarter, Happier and Richer
I cannot believe that we are now in 2022!
This time last year, we were hoping that the turning of the calendar page would herald the end to a tough year and brighter times ahead.
That, unfortunately, wasn’t to be the case.
When the lockdowns came again in 2021, we were less able to handle them. I know I certainly got to “lockdown fatigue” as each successive one became harder and harder to live through.
As we move into 2022, it is almost a daily occurrence that we are sent a text telling us we have been in the same location as a COVID case. Cases continue to surge around the country and around the world.
So, the pandemic is not yet over. And we might be in for some more tough times ahead. However, it’s not all doom and gloom and despite all that - I do expect 2022 will be a much better year.
It is this time of year that most people put together a list of New Year’s resolutions. Behavioural Psychologists tell us that we regard the start of the year or indeed the start of the month as a time to try and change our behaviour.
So I want to ask you to consider making some New Year’s resolutions for your finances, to get 2022 (and the rest of your life) off to a cracking start.
None of these ideas are new. There's little in investing that truly is. Instead, financial success is far more likely to come from doing the simple things, repeatedly. As we know, our lives can also change quickly. So I like to think of these resolutions as the general rules to live your life by - the ones that will help you achieve your financial goals, no matter the circumstance.
So, without further ado...
Eight New Year’s Resolutions To Help You Become Smarter, Happier, and Richer
1. I will live below my means — spending less than I earn.
Many of you have heard me quote Charles Dickens. He wrote in David Copperfield:
Annual income twenty pounds, annual expenditure ninteen pounds and six, result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
(And don’t ask me around the pounds and sixpence – I have hard enough time explaining this currency to my own children).
2. I will save money into a rainy-day fund so I’m ready for what life might bring.
This is the cash buffer I talk to many times – decide what you need in a cash buffer and set it aside. It does need to earn as much as possible – not nil – so check what your bank is paying you on this account.
3. I will pay off my credit card debt, and then only spend what I can pay off within the interest-free period each month.
For younger clients – this is about ensuring that you do not have credit card debt and you pay off the balance in full each month. The interest rates are ridiculous. Even the low-rate cards charge 13% - 14%.
For clients who want their cash buffer to be in part a credit card (for use in an emergency), it is around ensuring you have the right level of credit card limit for that emergency.
4. I will review my current employment and income and potential future employment and income.
By far your biggest asset is you! You will work for approx. 40 Years (25 to 65) and what you get paid will determine to some extent your financial future (subject to 1 above).
Make sure you have a plan to ensure that you get paid fairly for the work you do – and have a plan around how you might increase this income.
Most clients know I am a huge fan of education through life – as in most cases this will determine your current and future income (unless you become an entrepreneur).
5. I will regularly add to my investment account, starting today.
I often talk that my first investment process (at age 25) was simply to save $1,000 per quarter. (Remember I recall my salary as being around $20,000 – so $4,000 per annum seemed a great sum at that time).
Many have heard me say this year I have been putting $1,000 per month aside to pay for my daughter, Keely’s wedding.
What do both strategies have in common – I am putting aside money ready to purchase investments – and this leads to point 6.
6. I will invest the money I don’t need for at least 3-5 years to build my nest egg.
When I saved that $1,000 per quarter at age 25, I bought shares using those funds.
When I put that $1,000 per month aside for the wedding, I bought shares. The timeline to the wedding is not great (as it is definitely not 3-5 years, and the wedding will be in 2022). However, with interest rates so low, I concluded I was prepared to take that risk.
(Over Christmas, my daughter, Aimee, also got engaged so I am pleased I started this savings plan).
7. I will learn more about investing, taking control of my financial future.
I talk later about building a relationship with an adviser – part of their role should be to educate you. Reading also helps – and if you are not a fan of reading, the world has come to us with Podcasts and Audible.
Here are some podcast and book recommendations.
8. I will remember some of the basic rules of investing
I will buy shares in a company with the intention of holding them for the long term.
I will avoid anchoring my decisions to the price I paid for my shares.
I will expect volatility, and I won’t let it spook me into selling. Indeed, volatility can offer me great opportunities to buy at reduced prices.
9. I will review my current Insurances.
Insurances cover me for any adverse life event – and I have experienced in my family the value of having insurances in place.
Interesting that clients – when asked about insurance – typically have covered their general insurances such as:
House and Contents Insurance
Car Insurance
Many however have not covered their biggest asset, themselves. You should review, at least annually:
Income Protection Insurance. This is particularly relevant this year with the changes in the Income Protection Insurances – but aims to cover 75% of your current income in the event you are not able to work for a short or longer period of time.
Total and Permanent Disablement. TPD covers you with a lump sum in the event you are never able to work again
Trauma Insurance. Trauma covers you with a lump sum in the event of being diagnosed with one of 30 medical conditions – the most common claims being Cancer or Heart Disease.
Life Insurance. Your family will receive a lump sum in the event of your death.
10. I will build a relationship with a financial adviser. I will share with them my financial goals and use the relationship to help me achieve those goals.
I strongly believe in the advice relationship – the advisor should be your trusted coach – someone with whom you feel comfortable discussing your goals and exploring your options.
When I asked one of my children to read this article – they said – you are putting in a plug for your business. And yes, they are right!
However, I have in the past used an external adviser to review my situation and ensure that I was able to articulate my goals and preferences – that I had a plan to achieve those goals.
The 2021 Russell Report on the value of Advice tries to estimate the value of advice – and this year they worked out the value of advice to be 4.83% of your portfolio. (That is on a $1,000,000 portfolio you would be better off by $48,300 with an adviser).
You might ask how did they get this value?
Rebalancing your portfolio. This means actively rebalancing your portfolio out of sectors with high growth in values to sectors that have yet to perform will deliver additional risk/return outcomes.
Behavioural coaching. This means ensuring you do not make the mistakes mentioned in Point 8 above. Many investors went to cash in March 2020 after the S&P fell 33.8% - and did not get back into the market in time to take advantage of the uplift that followed. Statistically, the average investor’s inclination to buy high and sell low cost them 2.02% annually in the 36 year period from 1984 to 2020.
Customized Client Experience and Planning. I strongly believe in anchoring your investment decisions around your personal set of goals, circumstances, and preferences. Why?
When times get tough – as all investments do at some time – you can review your original goal and in most cases, this will keep you committed to the investment strategy – and the outcomes desired.
Product Alignment. The adviser needs to match the individual client’s goals, circumstances and preferences to the mix of products that meet their needs.
Tax-smart planning & investment. Your largest single cost throughout your life is your tax. I strongly believe that advice around Tax-smart planning and investing will ensure that this cost is held to a level that is in line with your preferences.
You should look for an adviser that helps you in all of the below areas:
I hope these New Year’s Resolutions, or rather Rules for Financial Wealth, help to give you some inspiration and thought for your 2022!
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate considering your particular objectives, financial situation and needs.
Your Advisors are Hell Yes! Financial Advice Pty Ltd, ABN 25 618 086 605 | CAR 1254388
A Corporate Authorised Representative of Viridian Advisory Pty Ltd, ABN 34 605 438 042, Australian Financial Services Licence 476223
Vicki O’Connor AR 1000956, an Authorised Representative of Viridian Advisory.