by Susan Lyon
The fiscal cliff is looming, and a lot is at stake on both the national and individual level. Come January 2013, a lot stands to change for our nation’s finances – but come the New Year, what will change when it comes to your personal finance resolutions? Spend less, save more? Very worthy goals, but we’ve heard it all before.
A combination of expiring tax breaks and new spending cuts, taking place all at once in 2013, stands to reduce our national deficit up to $607 billion. These changes will likely have profound effects on our individual tax rates as well as on the unemployment level, as depicted in NerdWallet’s fiscal cliff infographic.
While we can’t control everything that happens at the national policy level, we can determine our own financial wants and needs. So this New Year’s, it’s up to you to decide your top financial priorities – and we’re here to help you make it happen. By committing out loud to yourself and others the financial goals you hope to tackle in 2013, you increase the likelihood of their successful fulfillment and give yourself milestones to work toward.
Here are our Top 5 Investing New Years Resolutions for 2012-2013 that we think the savvy investor stands to gain a lot from:
1. Resolution: “I will stop paying $9.99 per stock trade.”
Don’t let E-trade’s talking baby commercial tell you what to do, however cute it may be. Though the 3 largest brand name brokerages charge between $7.99 and $9.99 per trade, in reality you can invest far more affordably at discount brokerages while receiving just as reliable service and speed. NerdWallet’s broker comparison tool lets you find the accounts that are best for your investing needs.
2. Resolution: “I will stop worrying about the fiscal cliff and do something about it instead.”
I will learn how to protect my finances from the threat of the 2013 fiscal cliff, and the best way you can do that is to stop worrying and start saving, investing, and diversifying sooner rather than later. Read up on the fiscal cliff to learn more about what’s at stake in terms of tax provisions and fiscal policies.
3. Resolution: “I will figure out how to diversify my portfolio – for real this time.”
You’ve probably been told to diversify time and time again – but the details of diversification look quite different for every individual, particularly depending upon your time horizon and risk aversion. The very first step is to understand the types of asset classes, or different groupings of investments, that are available to you. Next, determine how much risk you want to take on; this widely recognized investing by age guide shows how to diversify your portfolio at different stages in your life. Put simply, the younger you are, the more risk you can take on while investing because you have more years to go. Don’t forget to rebalance periodically.
4. Resolution: “I will learn and teach the financial lessons not taught in school.”
The experts agree: to achieve a high level of financial literacy in our society, which is currently sorely lacking, we need to start the education process at home. Whether or not you have kids, by learning and then teaching ourselves all the financial lessons that we aren’t necessarily learning in schools, we can lead by example to develop good habits and pass them on to family and friends.
Professor of Personal Finance Tahira K. Hira of Iowa State University, recommends roughly following this budgeting rule of thumb to make sure you’re spending and saving your earned income wisely:
- 60-65% of Your Income Should Go To Daily Life expenses – including rent, food, shopping, loan payments, etc.
- 20%: ‘Pull In, Pull Out’ savings – for medium term needs like travel, unexpected expenses, medical bills, and medium term needs.
- 10%: Retirement savings – not to be touched once put away, save for the occasional investment rebalancing.
- 5-10%: Charitable Donations to the cause of your choice, if you so chose.
5. Resolution: “I will do my homework to pick the right broker for me.”
When it comes to investing, don’t let yourself become a statistic. A recent NerdWallet study found that 17 million investors are throwing away over $1.8 billion per year on unnecessary fees they could avoid by shopping around and taking their money elsewhere. Pledge to yourself that you will do the quick, easy research on which brokerage account(s) will save you the most money – and then open one up to reap the benefits in 2013.