Start your New Year off right! Listen in today as Josh and Austin discuss some New Year’s financial resolutions that you should consider making for yourself. Your resolutions, or goals, for the new year should follow “S.M.A.R.T.” guidelines, which Josh and Austin will discuss. They should also be split into short-term and long-term—things you can do today that will be beneficial today, and things you can do today that will be beneficial in the long-run. Like any New Year’s resolution, they can be tough to keep up with, but with some great insight and advice from The Invested Dads, we think you can make your resolutions stick (No gym membership required)!
Clear and concise financial things you can do as New Year's resolutions to end 2020 in a better spot than you started it Click To TweetTalking Points
[2:56] – S.M.A.R.T. Goals
[6:52] – What Can You Do Right Now?
[7:34] – Resolution #1: Keep an Eye on Your Credit Report
[9:45] – Resolution #2: Check Your Will for Any Life Changes
[11:25] – Resolution #3: Review Your Insurance for Changes, Look for Savings, & Try to Bundle
[14:37] – Resolution #4: Review Your Investments with Your Financial Advisor
[15:43] – What Can You Do for the Long Run?
[16:06] – Resolution #1: Track Your Spending So You Can Budget Better
[19:07] – Resolution #2: Pay Attention to Your Debt & Focus on High-Interest Debt First
[21:09] – Resolution #3: Increase Your Savings Using the 50/50 Rule
[22:27] – Resolution #4: Save for Big Ticket Items to Avoid Debt
[24:07] – Resolution #5: Start an Emergency Fund that Will Cover 3-6 Months of Living Expenses
[30:30] – Reminder: FREE T-Shirt Giveaway!!
[31:43] – Next Week’s Episode
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Links & Resources
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https://www.spring.org.uk/2009/09/how-long-to-form-a-habit
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Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
Hey, hey, hey it’s Austin Wilson and Josh Robb with The Invested Dads Podcast here to bring you episode three. What are we going to talk about today, Josh?
Josh Robb:
Well, seeing it’s a new year, let’s talk about New Year’s resolutions, things that our listeners can do to help them get a New Year’s resolution that will not fail.
Austin Wilson:
Yeah, that’s right. Talking about some financial goal setting today in this new year and how we can all help each other out and setting ourselves up for financial success. It’s kind of funny. A lot of people use New Year’s resolutions to get back into shape. There’s a lot of crowded gyms around the new year, which I tend to avoid not just in the new year at January, but also all year round. Got to keep that dad bod going up.
Josh Robb:
Also, I always joke, my New Year’s resolution is to not make any New Year’s resolutions.
Austin Wilson:
How’s that working out for you?
Josh Robb:
Well, every time I do that, I fail because I made a New Year’s resolution. But if I don’t do it, then I pass it because I didn’t make a resolution. But since I didn’t make one, I don’t think I succeeded in it. I just don’t know. I get so confused.
Austin Wilson:
I think that that’s one of the deep theological questions of the day that I just don’t think I have the mind power to comprehend.
Josh Robb:
But what we want to do today is not confuse you, but give you some clear and concise financial things you can do as New Year’s resolutions to end 2020 in a better spot than you started it. That’s what we’re going to do today is we’re just going to talk about what are things that are easy, simple things they can do starting today to get in a better financial position than they started.
Austin Wilson:
Yeah. One could even say that we’re the CrossFit trainers of the financial planning world. That’s kind of to say that we don’t do any exceptionally well, but we do everything or we know a little bit about a lot of things, just a little bit. Hopefully we can kind of skim through some very, very attainable goals for this new year together. We’re going to be talking about the things we can do in this new year that we won’t give up on early. Now, it is common knowledge that it’s hard to form a habit, right, Josh?
Josh Robb:
Yeah. When you think about New Year’s resolutions, like you said, people start off all excited. They’re all about, I want to work out three, four days a week. I’m going to the gym. I got a new membership.
Austin Wilson:
Eight days a week.
Josh Robb:
Eight days a week. I’m there 24/7. I’m eating, sleeping, gym. I smell like a gym.
Austin Wilson:
Get my money’s worth.
Josh Robb:
They’re we’re all in. Then two weeks later you ask, hey, how’s it going? Like I quit that. I couldn’t do it. There’s an article in Psychology Today and they were talking about how on average it takes about 66 days to turn a habit into an automatic activity or skill.
Austin Wilson:
Over two months doing something everyday.
Josh Robb:
That’s the average. Some take longer. Some take less.
Austin Wilson:
I would say I would be on the longer end of that. I bring that average up.
[2:56] – S.M.A.R.T. Goals
Josh Robb:
Yup. That concept being is for a lot of people, they don’t do it… Whatever their New Year’s resolutions, they don’t do it long enough to build that habit into something that’s sustainable. That’s part of the problem is they come in all excited and one little failure they think, well, I’m already messed up. It’s too late now. I can’t succeed. You kind of have an acronym there that you say helps with setting those goals. You want to have a certain type of goal. What is that?
Austin Wilson:
It’s a dumb goal. That’s not a dumb goal. We don’t want to form dumb goals. We want to form smart goals.
Josh Robb:
Smart goals.
Austin Wilson:
That’s smart as in S.M.A.R.T. Maybe there’s periods in between there. It’s an acronym, right?
Josh Robb:
Yup.
Austin Wilson:
Think about smart goals. Specific, S, Smart goals.
Josh Robb:
Like the ocean.
Austin Wilson:
Like the ocean.
Josh Robb:
No, Pacific, Pacific.
Austin Wilson:
Pacific Ocean. No, it’s the specific goals. We want to lay out goals that we know exactly what we’re trying to do. We’re very clear on what we’re going with and what the goal is in general. We can’t be very vague about it. That’s specific. The M in SMART is measurable. What is a goal where you will know if you don’t hit it or if you do hit it and where you’re progressing along the way? You have to be able to measure that goal at any point in time and also at the end, obviously, if you’ve completed that goal. Measurable. A, attainable. It has to be a realistic goal. You can’t be like… Josh is going to be like, “Hey, I’m going to save $2 million by Thursday.” I mean, that sounds like a great goal. Some people can do that.
Josh Robb:
No, not the average person.
Austin Wilson:
But that’s not attainable for a lot of people. It has to be attainable. Realistic things that you can actually do.
Josh Robb:
I think that attainable comes to the point too. Somebody says, “I want to work out four days a week.” Well, then life shows up and they get sick or they have a sick kid and they miss the gym.
Austin Wilson:
Or a two-year old.
Josh Robb:
Yeah, and they say, “Well, I’ve already failed that.” You got to make it attainable. You miss a day. So what? You’re still on the track. That’s what we’re going to try and focus on here. Keep going.
Austin Wilson:
Exactly. The R of SMART is relevant. It’s a goal that matters to you, a goal that matters to you and your family’s financial situation in your particular picture. It’s something that’s going to make a difference. It’s relevant to your world. The T, the final letter of SMART, is time-based. A goal without an end date is kind of pointless because you can just push it off and push it off and push it off and not really have anything to measure yourself on. But if you say, “By the end of 2020 I’m going to increase my savings rate to 10% or whatever,” you know by the end of the year I have to do this. That is how I’m measuring myself. That’s a really good thing there.
Josh Robb:
Go back to $2 million. If I set a goal, I said I want to earn $2 million, if I don’t put a timeline to that, eventually I probably will get there if you just look at salary over time and inflation. Hey, I finally earned $2 million. Well, it doesn’t matter if it’s 60 years later and I finally hit that goal if I didn’t save anything. Earning it means nothing. You got to put time value to that.
Austin Wilson:
Now, we did want to throw a disclaimer out there that this episode, we’re really focusing on some things that we can work on today, some things we can work on this year and in the short term to kind of set ourselves up for financial success. But that does not discredit the importance of long-term financial planning and that that really drives everything that we’re doing when we’re talking about this. The things we’re going to be talking about today are things you can do today and this month and this week, but they are a part of your overall financial picture when it comes to retirement savings and those kinds of things. It’s just a small portion, but these are the things that you can take away starting today and really make a change here in this new year.
Josh Robb:
Yeah. Some of these small short-term goals are the stepping blocks to those long-term goals. Like you said about measurable, some of these maybe the measurable pieces to get to that final financial picture that you’re looking for. If I can get these things in place, I’m that much closer to attaining that long-term goal.
Austin Wilson:
A lot of these we’re going to have specific episodes on in the future, so stay tuned for those. Kind of going to keep going kind of at a higher level this week, but we’re going to keep moving and we’re going to cover a lot of information.
[6:52] – What Can You Do Right Now?
Josh, what are some specific examples of things that listeners can do right away starting today to make a difference?
Josh Robb:
We got some that you can do today and be done. You could say, “I accomplished my New Year’s resolution and I’m all set. I don’t have to worry about it anymore.” For instance, my New Year’s resolution to eat a doughnut I could have already accomplished because it was a short, easy, attainable goal. It was a S.M.A.R.T. goal in my mind.
Austin Wilson:
Is it a duplicate goal? Can you like copy and paste that goal?
Josh Robb:
Every day. Every day.
Austin Wilson:
That’s good. One doughnut per year, that seems pretty…
Josh Robb:
One doughnut a year is a low bar to set for me. Pretty much New Year’s Eve I think I was eating a doughnut.
Austin Wilson:
No, no. Doughnut have negative calories, right?
Josh Robb:
With the hole in the middle, yeah. They all fall out. The calories fall out the middle.
Austin Wilson:
So we can have some more.
[7:34] – Resolution #1: Keep an Eye on Your Credit Report
Josh Robb:
Something that I can do today, and this is a start one, is we recommend that you keep an eye on your credit report. You’re allowed to get every 12 months a copy of your credit report. The best place to go is annualcreditreport.com and that is the one that the government has set up as a way of getting your credit report.
Austin Wilson:
Link in the description.
Josh Robb:
There is a link in our show notes. The annual credit report is important because, one, it shows you all the different credit accounts that you have open. What’s a credit account? It’s something that you can borrow against, so a credit card or some sort of loans. If you have a car loan or anything like that, it can show up as a loan against you. There’s really three companies that track all this. There’s Equifax, there’s Experian, and then there’s TransUnion. Those three are three separate ones. They look a little different, but you’re allowed to get a credit report from each of them every 12 months. Now, I don’t recommend you get all three at once because they’re going to say the exact same thing.
So three times a year you can get your credit report if you spread those out. But either way, at least once a year, pull that credit report, look at it and say, “Are there anything on here that shouldn’t be? Did I close an account and they never heard about it? Is there something in here that shouldn’t be there? Two, are there things that are there that I don’t know what they are?”
Austin Wilson:
This is the scary and probably most important part.
Josh Robb:
Is there somebody else opening an account in my name and using it that I don’t know about? Then the third one is they give you a score and that credit score matters for getting loans. You want to make sure that that’s at a spot where you’re comfortable with it.
Austin Wilson:
Those three providers, they utilize scores a little bit differently.
Josh Robb:
Correct.
Austin Wilson:
If you run at the same exact time on the same exact day a report from Equifax, Experian and TransUnion, you’re likely going to get three different numbers. But if, Josh, you went and got a house tomorrow, when they pull your credit report, they’re going to pull all three and they’re going to run some sort of average between the three different providers to get your credit score.
Josh Robb:
That’s important for you to know. It’s important, especially for fraud purposes. That’s where you can see if someone else has access to opening credit in your name.
Austin Wilson:
And it’s free.
Josh Robb:
It’s free. It doesn’t cost anything.
[9:45] – Resolution #2: Check Your Will for Any Life Changes
Austin Wilson:
Once a year free, take advantage of it. Number two, we think it’s important that every year everyone checks their will. First of all, we think it’s important that you have a will and we’ll have an episode dedicated in the future about estate planning and things like that. But let’s assume you have a will and we think it’s very important every year to check that. Do an annual review. Did anything change? Did you have a kid? Do you have any new dependents? Are the guardians listed for your dependents, should anything happen to you, still the best fit for them? Those are things you should really keep an eye on and reviewing every year because life happens.
Josh Robb:
Yeah. True story.
Austin Wilson:
Life changes. Yeah.
Josh Robb:
True story. There was a client that had certain guardians set up and those guardians moved out of state. Something happened to them. Then they would have been listed in the will as being the guardians for the kids, which is fine except for now the kids not only have the tragedy of losing the parents, but they also are moving out of state from all the other friends and family that are there.
Austin Wilson:
That’s a lot of change.
Josh Robb:
It’s something you got to think through that. Are they still the ones we want in the will? When we say check your will, that doesn’t mean you have to get an attorney involved. There’s no cost involved for you to look at this and say has anything changed? That’s really the starting point.
Austin Wilson:
Even if you were to have a small change, say you wanted to change the guardian on your will for your children, when you work with your attorney, that would likely be a pretty affordable change.
Josh Robb:
They’re not redoing the whole thing.
Austin Wilson:
They’re not redoing the will. They’re changing one line on it. Yeah, we feel like checking your will at least annually is very, very important because even though a lot of people think, and I would agree, it’s pretty unlikely that some of these events were to happen, they do happen. It would be unfortunate to be caught out and not having reviewed that within a timely manner so that something would happen that you wouldn’t want to.
Josh Robb:
Plan for the worst and hope for the best.
[11:25] – Resolution #3: Review Your Insurance for Changes, Look for Savings, & Try to Bundle
Austin Wilson:
Exactly. All right. Number three on this little list of things you can do right now is insurance review. There’s a couple of different areas of insurance that it’s important to review at least annually. Number one is life insurance. Review the needs that you have for life insurance and if you have enough coverage to meet those needs. Have your needs changed? Has your income changed so that you want to provide potentially more if something were to happen to you? Have your dependents changed? These are all things that you need to be reviewing very frequently just to make sure that you’re providing the best coverage you can should anything happen to you. Another couple areas of insurance that are important are your home and auto insurance. Review those frequently.
If you’ve moved, you need to be moving your insurance with your houses. Make sure that your coverages and your deductibles are appropriate to where you would be comfortable because sometimes you can adjust your deductibles up or down and get your cost up or down to go follow that as well. Something as simple as do you have any vehicles that you sold this year that you still have an insurance policy on, you should probably get that canceled and save a little bit of money or transfer that to your new policy or whatever. Just reviewing these things, keeping up on them at least once a year is definitely going to help set you up.
Josh Robb:
Don’t be afraid to ask your insurance agent, are there things I can do to reduce my premium? For instance, hey, if I have fire extinguishers, does that give me a benefit? If I have smoke alarms and carbon monoxide alarms, ask and see what are out there because there’s a lot of deductions you can get or reductions in your premium just for doing simple things that also are safe and efficient for your home in general. Because I know that was one thing they always ask is do you have a fire extinguisher? Why do I need a fire extinguisher? But I ended up getting one and it’s under our kitchen sink and it’s ready to go just in case. You get updated every once in a while, but that little thing makes a difference and that it can count towards a reduced premium.
Austin Wilson:
I would say another important thing that’s often overlooked is look at bundling your home and your auto insurance specifically. Those are two that are very easy to bundle. The same providers typically provide both, and you can often get a discount on both. That can add up to hundreds, if not thousands of dollars a year just from combining all of that.
Josh Robb:
There’s a lot of new companies that are taking the tech side and making insurance a little bit easier and more affordable. I think Lemonade.com, I don’t know if you’ve heard of that, but it’s a new insurance-
Austin Wilson:
It makes me thirsty.
Josh Robb:
I know. It seem weird their choice. I don’t know what brought that out, but that’s one. Again, we don’t endorse or support any specific one, but that’s one I’m pointing out for a technology standpoint. You do almost everything online. There’s really not insurance agents to talk about-
Austin Wilson:
I think I figured out their name. Their name is Lemonade because-
Josh Robb:
When life makes lemons?
Austin Wilson:
Oh, I didn’t even think about that. I was thinking it kind of going the same way as your house burns down, so that’s sour, that’s not fun, but they’re going to make it sweet.
Josh Robb:
Nah. I think it’s the life gives you lemons, you make lemonade. But the idea being you can request a quote from them online. Super easy. Same as like you see the Geico commercials, you know, like 15 minutes can save you a bunch of insurance. The whole concept being they’re making it easier and easier with technology to see am I paying a good price or am I paying too much? Don’t be afraid to shop around. That’s always important.
[14:37] – Resolution #4: Review Your Investments with Your Financial Advisor
Austin Wilson:
Yeah. What’s one more, Josh? One more action, short-term, listeners can do right away.
Josh Robb:
One thing you could do right away is we always encourage just at the beginning of the year or at some point in the year, beginning of the year is always a good time, is review your investments. If you work with a financial advisor, set up a meeting with them to talk through, how am I allocated? What happened last year? Did anything change? And am I in the right spot? Again, 2019 was a good year. We had a pretty good stock market. Maybe you have too much in equities now. Maybe your asset allocation changed a little bit. Also from your financial advisor, talk with him about your beneficiaries. Have anything changed along there? Do you have the right people listed on the accounts that you want if something would happen to you?
Again, your will dictate certain things, but beneficiaries supersede that. If you have an IRA or a 401(k) account, remember, that trumps a will. Whatever is listed on there will happen regardless of what your will says. So make sure those are all working together. You can do a lot with beneficiaries on that because you can bypass probate, which keeps things quicker, easier and out of the court. That’s something you could do quickly, just a quick review with your investment.
[15:43] – What Can You Do For the Long-Run?
Austin Wilson:
Absolutely. Josh, suppose that we’re going to talk about some goals that you can accomplish throughout the course of the year. The ones we just talked about, you can kind of do in a day, you can do it in an hour, you can do it in a week, whatever, very short-term. But say you want to look, or a listener wants to look at 2020 in total. What are some things that they can work at to get better at over time? These are really things that just are constant in our financial planning mind. What are some things we can do there?
[16:06] – Resolution #1: Track Your Spending So You Can Budget Better
Josh Robb:
Again, some of these we’re going to have a full episode on to give you more detail about it, but one of the first ones is budgeting, right? The goal is if you head into 2020, I want to end the year in 2020 financially better than I started the year. One of the easiest and most efficient ways of doing that is looking at your budget, right? Budgeting is just simply tracking your income and your spending. What you want ideally is income to come in and less money to go out, so you have some leftover. What you do, if you’ve never budgeted before—it’s super easy—don’t do anything different. Start January, spend exactly like you would.
Austin Wilson:
It’s an action anyone can take super easy.
Josh Robb:
Throughout the timeframe, don’t change anything. Spend exactly as you normally do. But at the end of the month, end of January, you take all your receipts or if you do it on a credit card or a debit card, pull that statement, look at how you spent that and break it up into categories. How much did I spend on entertainment? How much on food? How much on gas and travel? How much should I spend on subscriptions? How much did I spend on all that stuff? Break it apart. Look through each of those groupings and say, “Am I surprised by that? How much am I paying for subscriptions? Do I use all those subscriptions?” Because a lot of times you sign up for something monthly and you forget it.
Austin Wilson:
Those $10 or $15 subscription services, if you have four or five or six or eight of them, they add up pretty quickly.
Josh Robb:
Take that budget at the end of January, look through it and say, “What are a couple things I can being conscious of it reduce? One of the ones that my wife and I do is eating out. It’s pretty simple to say, “Hey, I’m at work. I need lunch. I’m just going to grab something. I’m going to DoorDash it over to the office so I don’t have to go anywhere.” Those add up. There’s a reason why it costs a little more because they’re doing all the work for you. If you could say, “Okay, what if I cut my eating out to just once a week, or you set a goal like that, that’s the budgeting. Simple budgeting.
Austin Wilson:
This is the key when it comes down to being realistic, right?
Josh Robb:
Yes.
Austin Wilson:
It’s easy to look at your budget after January and be like, “Oh my goodness, I spent $400 eating out. I’m not going to do it at all.”
Josh Robb:
Yeah, don’t go extreme. I’ll say it probably too much where you get tired of it. I’m a huge fan of moderation. When you go extreme by cutting something out, you’ll end up either replacing that with something else, which may be just as bad, or when you do fail, you’ll go to the other extreme and overindulgent whatever that was that you cut out. I’m a fan of moderation, say what’s realistic that I can adjust, but not so much that I’m miserable because eating out is fun. Eating out is enjoyable. There’s nothing wrong with that. The idea is, okay, can I just reduce that or adjust it? The same with the subscriptions is do I need six movie subscription services or one or two? Am I overlapping some of this stuff? That’s the thing with budgeting.
Once you have that change, at the end of February, did I end up better? Is there anything else I can change? The other thing with budgeting is make sure you don’t get caught off guard by one-time or periodic expenses. Property tax is a good one. If you don’t have it automatically in your mortgage payments, twice a year property tax shows up. Don’t be surprised. It’s not new. It’s been there. Budgeting is planning ahead as well. It’s thinking forward. Okay, here’s what I’m spending, but also what’s coming up.
[19:07] – Resolution #2: Pay Attention to Your Debt & Focus on High-Interest Debt First
Josh Robb:
Moving from there is what else flows into the budget is debt payments. That’s something you have to do every month. Austin, what’s some things you could do about debt?
Austin Wilson:
Debt’s a budget killer, right? If you have a lot of credit card debt, a lot of student loan debt, a lot of auto loans, whatever, these debts you’ve taken on to purchase things or to attain things, that can take up a sizeable portion of your income every month. That’s definitely a tough reality for a lot of Americans. We’re going to have a dedicated episode for this in the future. But overall, we feel at a general level that outside of your home, it’s best to avoid or have the smallest amount of a debt and wherever you can. First of all, pay off that credit card debt because credit card debt—very high interest rates. You’re paying a lot more in costs than it was to actually purchase that item over time, especially if you don’t pay it off every month.
That’s the key here. That is number one. Number two, pay off auto loans. Auto… cars are depreciating assets. What that means is that from the second and every first mile you drove that car off the lot or whatever, it’s becoming worth less and it’s worth less and it’s worth less and that’s because the car is not going to last forever.
Josh Robb:
Even my classic 2011 Jeep Wrangler. Everybody wants it. It’s got to be appreciating.
Austin Wilson:
One day it could flip and turn collectible.
Josh Robb:
It’s getting there.
Austin Wilson:
But for most people that car that you’re driving everyday is worth less than it was the day before. To take on debt to purchase something that’s becoming worth less and less, so you’re paying interest on top of the actual cost to buy something that’s worth less and less, that’s a lose-lose situation. We would recommend saving up and paying cash for something like that over time. We’re going to talk about that in a little bit too. Also, then once you’ve got those sort of higher interest rate debts paid off, you can work towards paying off your student loans. You can work towards paying off your mortgage early, those sorts of things going forward. Yeah, debt can take up a huge portion of your income.
We would recommend that that would not be the case if you can at all possible. Work towards paying those things down, but especially those higher interest rate things first.
[21:09] – Resolution #3: Increase Your Savings Using the 50/50 Rule
Austin Wilson:
Next, I think it’s very important to talk about increasing your savings. We alluded this too a little bit in our promo episode as you can kind of set yourself up in a new year, but we’re going to talk about like the 50-50 rule. Think about, Josh, you get a 4% raise this year. That’s nice. You could easily say, “Yay, I get four more percent to go spend on doughnuts,” but that’s a lot of doughnuts. Do you need that many doughnuts?
Josh Robb:
I do.
Austin Wilson:
Josh might need that many doughnuts, but most people don’t need. Anyway, if you don’t let that full 4% flow down into your monthly budget, going back to the budget discussion, then you won’t spend it. What you can do is automatically increase your retirement savings. Maybe take 50… If you look at the 50-50 rule, you take half of that, you take 2%, and you apply two extra percent to your retirement savings, and you still let 2% flow down. You have a nice little couple extra dollars every month to flow down to your budget. You’re not really impacting your budget. You’re still increasing it a little bit over time, which is good because things cost more over time.
But over time, the retirement savings impact with compound interest can really, really be dramatic and that’s something that we would definitely encourage people to do. The goal here should be to save more by the end of the year than you’re saving right now. That’s kind of the focus we’re going to have is be better off at the end of this year than you are at the beginning of this year.
[22:27] – Resolution #4: Save for Big Ticket Items to Avoid Debt
Austin Wilson:
Next up, talking about big ticket items. Another big thing that you can plan for in this new year.
Josh Robb:
That’s getting pulled over by the cop.
Austin Wilson:
That’s a big ticket.
Josh Robb:
That’s a big ticket.
Austin Wilson:
Well, in your Jeep you might get pulled over a lot. It’s pretty rowdy.
Josh Robb:
It is. It’s not a fast vehicle though. It’s just driving through the grass they don’t like.
Austin Wilson:
But to avoid those debt payments that we are talking about, what you can do is save up a little bit every month and maybe open up a second savings account or something like that and automatically save 20, 30, 50, $100 here and there into that account so that you can buy a new car in five years when you’re going to want a new car, you’re going to need a new car, or have a goal to have enough money saved up to pay cash for your vacation that you’re going to take next year. Say you want to save a few thousand dollars for that, save up over time, little bits. Put it off to the side so that when you have those opportunities to do things, you can do them and you’re not taking on debt to do so. So saving up cash for those big ticket items really avoids taking on expensive debt where you’re going to be paying for it over time.
Josh Robb:
That comes to kind of the high level of goal-based investing.
Austin Wilson:
Right.
Josh Robb:
Each goal has its own investing criteria. Something short-term, you say, “Okay, this year we’re going to take a vacation.” You’re not going to invest that in the stock market. You’re going to save, but you’re going to want to save in a way that it will grow, and so you find a savings account or something like that, but you have a goal for that. Then you say, “Okay, this bucket over here is my retirement savings. I need different goals and a different base savings for that. I’m going to invest it in the market or do something to grow it quicker.” But goals-based investing is every goal you have an objective, but you also have a way of reaching that and you have those little steps along the way. Yup, that’s great.
[24:07] – Resolution #5: Start an Emergency Fund that Will Cover 3-6 Months of Living Expenses
Austin Wilson:
Exactly. Josh, give us one more. One more.
Josh Robb:
All right, last one. I think this is the most part one because we’re going to kind of end on is an emergency fund, right? What’s an emergency fund? It’s simply a fund there for emergencies. They were real creative in the naming of it obviously. But the idea was, okay, I’m driving down the road, a tire blows. Now I need a new tire. Okay? If I’m living paycheck to paycheck and I’m just saying, “Okay, every time money comes in, I’m paying it back out,” what do I do if I need a couple hundred dollars to get this repair done? That’s what this emergency fund is for. Something that’s unexpected shows up. You come home today. It’s cold out. It’s winter. Our heater’s not working. What do we need to do? We need to get it fixed because you can’t not have heat.
You’re in Ohio in the winter and so you have to do it. You got to pay for it somewhere. A lot of people end up getting in debt that way because those emergencies show up. Emergency fund is important because it avoids you having to make quick decisions and making decisions you’ll regret by pulling money from spots that you shouldn’t, whether it’s getting in more debt through a credit card or borrowing money from like your 401(k) where you’re no longer be earning that interest. The emergency fund is there for only emergencies. You’re not touching that for to buy the new car just because you want it. Obviously your car breaks down. That is an emergency. Let’s say you have a new pair of shoes you really like or there’s a new doughnut flavor you really want to try.
Austin Wilson:
Those can get pricey. Maple bacon fritter. They’re not the same price as the standard glaze.
Josh Robb:
That’s good. That’s the purpose. What do you do? You start from zero. What do you need to do?
Austin Wilson:
Absolutely. Josh, give us some examples on say you have no emergency defense set up. What can you do starting today?
Josh Robb:
Starting today, take whatever money you have extra and move it over. Let’s just say it’s $100. Put the $100 away from everything else. That’ll keep you from spending it and that $100 is your starting point. Then you automate, you set up something to say, “Okay, every paycheck I need $50 to go over to that emergency fund.” Whatever you can do. That goes back to that budgeting again. If I can get some wiggle room in there, that’s the thing I’m going to move it over for. If I can get a little extra savings, it’s going to that emergency fund with the goal being that emergency fund should be three to six months of your living expense, not your income, your living expense.
If within the month it cost me $4,000 between all my payments for my mortgage and my property tax and my utilities, all that, my food, my gas, if that’s $4,000, I’m going to need three to six months. $12,000 is kind of that target point to hit. Why three to six months? If I’m in a relationship or there’s a couple and we both have an income, the chance is probably one of us could lose our income, not both in most cases. We still have income coming in from the other earner.
Austin Wilson:
You’d lean more towards the three months?
Josh Robb:
Three, you don’t need quite as long. But if it’s all up to one person, if you’re out, you’re out. There’s no more income coming in, so that’s where you’d lean more to the heavy side. Then just too, how do you feel? What makes you sleep at night? If you say, “You know what? I know I got two streams of income coming in, but I really just struggle with this. It stresses me out,” go six months, go eight months. There’s no like magic number here. It’s just they found on average when people lose their job, it takes them three to six months to get resettled in a new job.
Austin Wilson:
There’s no huge penalty on having more. More is okay. You can withstand a bigger emergency without taking on an issue.
Josh Robb:
The key is separate it, put it aside. It’s not part of your spending.
Austin Wilson:
That’s one of the key things that I was going to bring up is how are you tempted not to dig into your emergency fund? When I log into my bank account, I’ve got checking and savings account. That’s great. Those are accounts that I see together all the time. But for an emergency fund, one tip is to actually open up another savings account with another institution and have it as a separate login, separate app, something you really don’t even need to access, and then set up as automatic recurring transfers from your main one so that you don’t even see it on a day to day basis. That way you’re not tempted to feel like, oh, I’ve got an extra $3,000 sitting in this account. I’m going to go buy that big screen TV. That’s just one little piece of advice where it’s going to help you be less tempted to dig into that if you don’t have to.
Josh Robb:
Yeah. Along with that, there’s a lot of online internet banks that have higher yielding savings accounts where you can actually have your money growing a little bit, but more so than you see in the traditional banks. That’s a great spot for emergency funds. You can link them back and forth. It’s super easy. Let’s talk today. What can you do today? This is what we would like to see all of our listeners know that today this will be the goal. We talked about things you could get done within the first month. That’s great. But today, get that emergency fund. If you don’t have it, get it started. Move just a little bit of money over just to get that account going and then set up that automation. What can I do automatically each paycheck over to the emergency fund to build it?
Austin Wilson:
You’ll never have to think about it
Josh Robb:
Do that today. Then this is the last thing, and you can do it today or tomorrow, but the idea being I need an accountability partner. If we go all the way back to that gym, me getting up and going to the gym, well, won’t happen. But too if I was trying to do that, me motivating myself at 5:30 in the morning to get up and go to that gym is just going to be a struggle. It’s going to be cold out and I have to scrape my windshield. It’s going to be bad. What are we going to do? If I have an accountability partner saying, “Hey, I’m going to be at the gym waiting for you,” that’s going to motivate me to show up and get there.
Austin Wilson:
Exactly.
Josh Robb:
That’s accountability. Now, depending on your intimacy with them, how much they know about your life depends on how much details you share. But it could be a best friend, somebody you’re really close to just say, “Hey.” You don’t need to know the values, but you’re just there to say, “Hey, are you still moving that money over? Are you still doing the automated stuff? Have you touched your emergency fund for anything that’s not emergency?” Or if you really trust them or close to them, you can allow that more detailed of, “Hey, I need $4,000 by the end of March.”
Austin Wilson:
Help me get there.
Josh Robb:
Make sure I’m there. Don’t let me… If you see me buying stuff, say, “Hey, are you still on track?” You could give them that give that permission to be kind of… They’re pushing you along because chances are if you have somebody helping you and you know somebody is aware of it, you’ll do a better job yourself.
Austin Wilson:
Mm-hmm. For sure. Yeah, that’s the takeaway from today, get that emergency fund started and then you have a lot. It’s just a good feeling, a good place to start, and you have a lot less risk just for your full financial picture going forward for 2020. Start your emergency fund today, listeners. It’s going to be great.
[30:30] – Reminder: Free T-Shirt Giveaway!!
Austin Wilson:
All right. Well, you know in the last couple episodes, we’ve had an announcement where we’ve had 25 The Invested Dads official t-shirts to give away. Well, that is continuing. So, here’s what you need to do to get your t-shirt.
First 25 people to leave us a review on Apple Podcasts and then screenshot that review and email your review screenshot to us at hello@theinvesteddads.com, the first 25 are going to get a free official The Invested Dads t-shirt, then we’ll follow up with you once we get your email if you’re in the top 25 to ship you your shirt and make sure we know your size and all that stuff. We’re so excited. We’re excited to hook you guys up with some swag, and we’re thankful for all of your reviews that we’re hoping to get. Yeah, keep up that swag giveaway. Keep it going.
Josh Robb:
Yup. Again, we’re so excited that you guys joined us as we start in this podcast. Thank you again for listening. Hopefully you have something that you can do to start this New Year’s off with a goal in mind. If you already have emergency fund, do you need to add to it? Is it at a safe level? If not, move on to those next one that we talked about earlier, but that emergency fund is key. It’ll save you a lot of stress in your life. Thanks again for listening.
[31:43] – Next Week’s Episode
Josh Robb:
Stay tuned. Our next episode, we’re going to be giving some bold predictions, 20 predictions for 2020.
Austin Wilson:
Oh, they’re bold.
Josh Robb:
Be listening for that. Austin, are we going to put ourselves out there on a limb? We’re going to throw some thoughts out there.
Austin Wilson:
Numbers.
Josh Robb:
Then we’re going to come back at the end of the year and see how we did. We’re going to score us.
Austin Wilson:
That’s right. Don’t forget to subscribe and share this podcast with anyone you find would find some value from it. We’d appreciate the support. Until next week, I’m Austin and this is Josh. We’ll talk to you soon. See you later. Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe and don’t miss the next episode. Josh Robb and Austin Wilson worked for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions.
Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecast provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.
