I’m annoyed with the preponderance of clickbait New Year’s advertising.
“Greatest ever weight-loss strategy.”
“Make a million bucks this year.”
Do you ever wonder why these same types of ads replay year after year? It’s because New Year’s resolutions don’t work. If they worked, then you wouldn’t need to reset them every year.
I stopped making New Year’s resolutions a long time ago. Instead, here’s a roadmap showing you how to build long-term wealth. This is how I did it — without New Year’s Resolutions.
Brilliant Goal Setting, Any Time of Year
From the time I was a young girl, I believed in the power of list-making. What I didn’t realize was that those early lists turned into goals which drove my life path. I love goal setting. In fact, I might be obsessed with it — just not New Year’s resolutions. January is an arbitrary time for setting goals or resolutions. And, if you wait to set a goal until January, you’re missing out on the power of compounding returns.
Many of my goals were financial. Over the decades, I’ve learned a special strategy to transform these long-term goals into a viable financial strategy. It all begins with a clear picture of what you want and the understanding of how to get it. There’s magic in writing down a financial management action plan that leads to money success.
New Year’s Resolutions Are Overrated — You Need Long-Term Money Goals
At age 30, my husband was in graduate school, and I was supporting the family by working at San Diego State University. We had saved up so that we could afford to live on one income while he was in graduate school. But times were tight, and we lived very simply. At that time, we made a bold financial decision.
Despite living on one income, we were committed to growing our net worth. Waiting four years until my husband was out of school to begin our financial plan wasn’t an option. So, instead of waiting until January 1 to start implementing our money goals, we began as soon as my new job began — in August.
More on Setting Goals: How to Set Career and Financial Goals You’ll Actually Achieve
First, I calculated our net worth and wrote out a five-year financial goal of how much I wanted that number to grow within the next five years. I calculated how much we could save if I invested the maximum into my workplace 403(b) account, which was approximately $12,000 per year. Then I approximated a return of 6-7 percent per year, to come up with $70,000.
So, our goal was to increase our net worth by $70,000 over five years.
Then, I did something bold, I contributed more than 30 percent of our salary into our TIAA-CREF (TIAA today) retirement account, with a combination of a fixed (7 percent rate) and stock market fund. It’s hard to believe that in the 1980s and 1990s, you could earn a 7 percent return on a cash-type investment.
We made an aggressive goal with our eyes wide open. To improve the possibility of reaching our goal, we lived simply. In fact, when we visited a stockbroker in San Diego to discuss our finances, he was shocked at how little we spent, and how much we saved and invested. Despite the lifestyle sacrifice, we never questioned our priorities, nor felt the need for extravagance.
At the end of five years, our net worth grew by more than $70,000 despite the 22.6 percent drop in the Dow Jones Industrial Average on Black Monday, Oct. 19, 1987.
Our fortitude to stay the course and continue investing during that market volatility, set the course for long-term wealth-building, instead of knee-jerk reactions, jumping in and out of the markets.
Real Estate Investing Was Our Next Financial Goal
When our rent was raised, we decided that instead of paying more rent, we needed to buy a house.
I want to be transparent: Our parents helped us out. Some folks online make it sound like they’ve mastered all their financial goals on their own, with no help along the way, and I’m sure that’s true on occasion. But our parents’ financial gift of a down payment allowed us to fulfill our next goal of buying a home.
Over time, we enjoyed tax deductions from the real estate tax and home mortgage deductions. Our home also grew in value, further adding to our net worth.
Our Financial Goals, Saving and Investing Continued
The tax-advantaged saving through our retirement account that began many years ago in San Diego continued. Every year since then, my husband and I have maxed out our tax-deferred savings in 401k and 403b accounts, along with traditional IRAs and Roth IRAs. This financial habit was built, and continued without New Year’s resolutions, but with a long-term commitment towards financial independence.
As our income grew, we also invested outside of our retirement accounts and opened a brokerage account. I wish that I could have chosen a robo-advisor for my investing in the 1980s, but they weren’t available yet. They’re a superb way to build wealth.
My husband and I created side hustles to create additional income sources — not for spending, but for working towards our ultimate money goals.
Our financial goals have been ingrained into the fabric of our lives. We keep track of our net worth several times a year. We make financial projections for both short, intermediate and long-term goals. Many decades later, we continue to develop other streams of income and live well below our means.
Over the years, we never lost sight of the true wealth of family, friends and service to others. Those core beliefs made it easy to live modestly, while growing our finances. And that’s why I think New Year’s resolutions are overrated.
Click to read about money challenges to take on this year.
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