E7: New Year, New Financial Planning Resolutions

Executive Summary

This week’s episode gets us ready for the long-awaited transition to 2021, as advisors Abrin Berkemeyer CFP® and Tyler Hafford go over New Year’s Resolutions to get your finances in order. Goodbye 2020 and Hello 2021! 

Resolution #1 – Build a Budget 

Abrin and Tyler dive into the importance of starting at the basics. While building a budget isn’t going to be the most exciting thing you do in 2021, it can be the most important “small step” to help you reach your financial goals. The two discuss why these little baby steps can have a dramatic impact on your behavior and be the building blocks to a better you. Tyler also stresses the importance of not making the budget a “set it and forget it” process, as he believes the most valuable part of making a budget is comparing it to your real-world spending.  

Resolution #2 – Pay Down Debt  

The second financial resolution for 2021 is making a strategy to pay down debt. This debt can be high consumer credit card debt, student loans, or any other debt that seems to be weighing down your financial picture. Abrin discusses a couple different strategies to paying down debt, including the snowball method. This method has you focusing on paying down the highest interest debt first, and then once you have paid off one outstanding loan or credit, shifting that payment to the next highest interest debt you have. This strategy will pick up momentum and build on itself, like a snowball, and help you eliminate your debt faster.  

The two acknowledge that the snowball method isn’t the only way to attack this problem. For folks who do better in seeing debt eliminated, there is the method where you attack the smallest debts first. While this method isn’t the “best” financial route to take, if it gets you to stay focused and committed to eliminating debt then it can be the right one!  

Resolution #3 – Savings Plans and Retirement Contributions  

If debt isn’t something that you need to focus on, shifting the mindset to savings can make a big difference down the road. The two take us back to those baby steps and building behaviors around setting money aside to achieve your goals.  

In this spirit, Abrin and Tyler discuss the ability to make contributions to an IRA for the year 2020 all the way up to the tax deadline on April 15th. This is a way to help reduce taxable income for 2020 and help increase your savings vehicles. Along with this, the two address that it is important to build out your retirement savings strategy for 2021.  

Resolution #4 – Rebalance Your Portfolios  

This resolution is concentrated on making sure your portfolios are still within the risk level you intended them to be at the start of the year. Rebalancing is the task of going in and making sure that your stock exposure has not grown too much over the past year, or your bond exposure is now not 10% higher than you expected it to be. By ignoring this rebalancing piece of managing a portfolio, you end up with investments that don’t necessarily line up with your risk tolerance and investment goals.  

Tyler talks about how 2020 was odd (In many many ways), by the market seeing a dramatic pullback in March, but then coming roaring back just a few months later. This high volatility coupled with mixed performance in different equity sectors could have your portfolio in need of a little adjusting.   

Resolution #5 – Talking with a Professional  

Tyler and Abrin acknowledge that a lot of the things they have mentioned in the show may not be the most exciting use of your time in the new year. If this is the case, then talking with a professional may make some sense. Like going to the gym to start on that new weight loss resolution, sometimes working with a trainer can help build your confidence and get you heading on the right track! 

DISCLAIMER: The foregoing content reflects the opinions of Penobscot Financial Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. 


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Full Transcript

Abrin Berkemeyer: Hey everybody. This is Abrin Berkemeyer.

Tyler Hafford: And this is Tyler Hafford.

Abrin Berkemeyer: And this is Financial Discretion Advised.

Tyler Hafford: Cue the music.

Tyler Hafford: Hey everybody. Thanks for tuning in. This is our New Year’s financial resolution podcast. Abrin and I will talk a little bit about our own kind of resolutions for the year coming up, but as I’ll start all the episodes, check us out on any podcatcher, you got Spotify, Apple, Google, anywhere you’re getting podcasts. Check out YouTube, we’re doing a little something different with the video this time. So if you haven’t checked us out on YouTube, this is a good time to start. I will tell anyone who is watching us on YouTube, we’re doing some different camera angles. So if it looks like Abrin and I are looking off into the abyss, we’re just looking at each other, but do make sure to kind of check us out.

Like I said, New Year’s financial resolutions podcast, going to tackle some things that you’re probably going to want to start the year off doing in your financial world to kind of set up for a good year. But before we get going, Abrin, do you have any type of resolutions this year or you’re thinking you’re perfect the way you are, you don’t even need to work on that?

Abrin Berkemeyer: Oh, well, I mean, that’s mighty kind of you to say.

Tyler Hafford: Yeah, no, I’ll give you a spoiler. You got a lot to work on.

Abrin Berkemeyer: Well, if you could give me a resolution or two, that’d be nice. I think one of my resolutions is I started three books last year, I made it halfway through all of them. And so, it’d be good to finish those.

Tyler Hafford: Yeah. Or at least get into 2020 and cheat, like I do with audio books.

Abrin Berkemeyer: Yeah, that’s true. And then, I’m studying for my enrolled agent. So that’s on my bucket list for 2021. That’s going to be time consuming. So it’ll be a lot.  I’m already doing the gym thing. I already started the trying to eat healthier thing before the New Year. So I’m going to stay away from those stereotypical New Year’s resolutions.

Tyler Hafford: Nice. My wife got me a guitar for Christmas. I used to play over a decade ago. So my New Year’s resolution is to remember how to do that.

Abrin Berkemeyer: Electric, acoustic, mini?

Tyler Hafford: I own acoustic, but we got my daughter a ukulele to try to learn on and-

Abrin Berkemeyer: Right, it’s better than a drum set.

Tyler Hafford: And right now she sounds better on it than I do on the guitar. So I got a little bit of remembering I got to do.

Abrin Berkemeyer: Glad to see some things passed down.

Tyler Hafford: Yep.

Abrin Berkemeyer: Only the good qualities.

Tyler Hafford: Awesome. All right. Well, let’s dive into this New Year’s kind of financial resolutions that some folks may have, or might want to throw on their list. First one, I had written down here and I think it’s a great place to start when looking at your finances and getting a gauge of how things going. And it’s simply just building a budget.

Abrin Berkemeyer: Yeah.

Tyler Hafford: Right? To me, if you got to start anywhere, it’s all right, how much money’s coming in and how much money’s going out the door? And depending on those two things, you can start to build around that, savings and debt pay down and all that, those types of things. But I think building a budget is number one.

Abrin Berkemeyer: Yeah. And whether it’s just sitting down and doing an annual budget to see what you think your expenses are going to be, it’s probably the best place to start.

Tyler Hafford: Right.

Abrin Berkemeyer: Or assessing monthly, just kind of setting some targets for yourself. And then obviously, the next step that you can take, or you might not necessarily have to take, if you think you’re good on it, is actually tracking expenses and recording and actually spending the time throughout the year. It’s obviously the, probably a little bit more time consuming and daunting thing for most folks.

Tyler Hafford: Yeah. That’s one of those things that I think is worth the effort though. When you building out the budget, it’s great. You kind of get your numbers in there. You’re going to save 12%. You’re going to do all these different things. But if you’re not tracking what you’re actually spending, money gets lost in places that you’re not paying attention to. And you’re not going to make any type of behavioral changes if you’re not seeing where you’re missing on the targets that you set for yourself. So it does take the little extra legwork, but I think if you’re serious about, “All right, I want to make sure I save this much this year. I want to pay down this much amount of my debt.” Knowing where your money’s going, I think is so crucial. And it’s one of those things that, like you said, Abrin, you set up your budget, you feel good about it. In two months, it’s like the gym membership-

Abrin Berkemeyer: You got to stop hitting the table. You’re shaking the camera.

Tyler Hafford: Sorry.

Abrin Berkemeyer: You just so amped about budgeting and just really enthusiastic, yeah.

Tyler Hafford: Well, it’s just so basic. But in a couple months, if you’re not paying attention to it, it’s like that gym membership, right? You showed up the first few weeks, you wore the wheels off the treadmill and then you just stopped going and all the progress you made is lost. And I think this is one of those things that is important to kind of keep going with.

Abrin Berkemeyer: Yeah. And I think one of the main points I want to make for anybody listening is just like every New Year’s resolution, we’re going to be talking about some financial topics, but it really is about baby steps. When you try to do the Hail Mary and you make all the big changes, those are the New Year’s resolutions that don’t happen. And just because, maybe it was an unrealistic goal or maybe you burned yourself out trying too hard early on. It’s just like with a football game, right? It’s like you throw the Hail Mary pass, maybe you get it, maybe you don’t. And if you got it, great. Most likely, you didn’t get it. And then what? Most football games aren’t one with Hail Mary passes, they’re one with first downs, going down the field, getting the touchdown. Might take time, might take effort, but that’s going to be the more consistent way to get things done.

Abrin Berkemeyer: And so, any New Year’s resolution, you want it to be something that’s within reach, something that you can do ongoingly and take baby steps towards, rather than trying to put all your effort in and say, “I’m going to get my financial picture for the rest of my life set in one month.” It’s like, “No, it’s something that you work at over time.” And likely, it’s something that you’re going to always have to work at. It’s just part of life.

Tyler Hafford: Yeah, it is. It’s not going to be as rewarding. Sitting down and coming up with a budget is not going to be the most exciting thing you do this year.

Abrin Berkemeyer: Let’s say like me and Excel spreadsheets.

Tyler Hafford: Yeah, I mean, outside of Abrin. For normal folks, it is not going to be the most exciting thing that you do this year, but it can be one of the most important. And I think it gets us into the next kind of resolutions that we’ve listed here. The next one I think is big, is planning a debt pay down strategy.

Tyler Hafford: Now, some people listening saying, “I don’t have too much debt out there. I don’t have to worry about it.” And that may be the case, that’s fantastic. You’re kind of ahead of the game there. But there’s a lot of financial gain that can be made in a good debt pay down strategy. There’s a snowball method and tackling high interest first and things like that. Abrin, do you want to kind of talk through a little bit of a debt pay down strategy people might want to use?

Abrin Berkemeyer: Yeah. I like the snowball method, it’s just a great one to start with. So the snowball method is a baby step method. What you do is you organize your debts by highest interest. And then obviously, all of your debts are going to have minimum payments associated with them. So you make all of your minimum payments. And then, if you have extra money that you can throw at that, then you throw it at the highest interest debt. Once that one’s paid off, you then take that payment that you were putting on that highest interest debt and apply it to the next highest interest debt.

Abrin Berkemeyer: So that way your monthly payment is staying the same. You’re still paying the same amount, but now you’ve got less debt. So now you’re tackling the next highest. But since you’re rolling that first payment into the next highest interest debt, now you’re going to pay that one down more quickly. And then that’s going to snowball and so that one’s paid off, onto your next highest interest debt.

Abrin Berkemeyer: And then you’re going to have the payment from the first debt, the payment from the second debt and the minimum payment from the third debt, all going towards that. And you can see how quickly, since you’re paying the same amount every month, you’re just not absorbing that extra cashflow that you have from not having to make the minimum payments. You’re just applying it to the next debt and paying it down really fast.

Tyler Hafford: Right. And tackling the high interests first is going to be the best for you.

Abrin Berkemeyer: Yeah. And you might not feel like you’re getting anywhere quickly, but you will on the back end, once the snowballing starts to happen.

Tyler Hafford: Yeah. And that’s one of those things, a lot of folks will say, “Well, shouldn’t I just kind of tackle these smaller ones first and kind of work my way that way.” Looking at-

Abrin Berkemeyer: That’s the Dave Ramsey method.

Tyler Hafford: Yeah, the Dave… And I understand that you’re going to see more of a reward of, “All right, that one’s paid off. This one’s starting to be paid off.” But I like the snowball method. And I like attacking the high interest debt because-

Abrin Berkemeyer: That’s what saves you the most interest over time.

Tyler Hafford: Yeah, right. That’s going to be the best financial way for you to tackle that problem.

Abrin Berkemeyer: If you can stick with it.

Tyler Hafford: Exactly.

Abrin Berkemeyer: And that’s the thing, that’s why Dave Ramsey always says, “Tackle the smallest one first.” Because it feels like you’re getting the little wins and you are getting the little wins. Because it’s like, “Oh, okay. I wanted to pay off this debt and now it’s paid off and I can move onto the next one.”

Tyler Hafford: Yep. So I mean, planning that strategy, I think is important, whichever way you go. I do favor the snowball, tackling the high interest, but I said this in the financial planning podcast and I really believe it when I’m talking with a client, the best financial plan is the one that you’re going to stick with. The one that you feel comfortable with, the one that you can enact.

Tyler Hafford: If you know yourself and you know you need those little wins to start tackling this debt problem or debt that’s out there, it isn’t a problem, just a debt that’s accumulated. Then that’s the best method for you, right?

Abrin Berkemeyer: Yeah.

Tyler Hafford: Because you’re going to do that. You’re actually going to take care of it. If you are one of those people that can see the long-term and say, “Geez, this is just a financially sound way to tackle this problem.” Then certainly, the snowball method’s better for you, but whichever one gets you to pay off that debt is the right method for you. So it’s got to be a little bit of a how you feel about it and what you’re most comfortable with.

Tyler Hafford: So Abrin, I’m going to take us into the next topic here. I’m just pulling it up. That we start to get into the investment side of the world. Inside of things on what should we be doing at the beginning of the year to set us up for the rest of the year.

Abrin Berkemeyer: Yeah, I think just to start, because it kind of goes hand-in-hand with debt reduction, would be if debt reduction isn’t an issue for you that you needed to tackle this year, maybe it’s a savings plan, which is also going to take money out of the budget. It’s kind of the other side of it. Once debt reduction is done, then you’re going to start looking at routine savings plans. And that goes along with the investing side that we’ll get into, but same thing with routine savings plans and debt reduction. If you’re going to tackle debt reduction, then if you can throw an extra $5 or $10 at your highest interest debt, that’s going to help you pay it down faster, same things with savings plans, baby steps would be…

Abrin Berkemeyer: If you don’t have enough money to fully fund your retirement goal, based on your monthly budget, start somewhere. Open up a Roth IRA and put 20 bucks in a month or whatever it is that can get you to get on that routine savings plan.

Abrin Berkemeyer: And then next year, maybe your goal is to double it or just increase your savings contribution. So whether that’s cash savings for a home or retirement savings, the biggest thing that you can do is start that budget. Find out how much you can start contributing towards debt reduction or in this case, a long-term savings plan and either get it in an investment account, if it’s for retirement or if you’re looking to buy a home in the next couple of years, put it in a high yield savings account and just get in that routine of saving money.

Abrin Berkemeyer: It doesn’t necessarily have to be a lot, but work towards your goals by at least getting it set up and starting it. And you’re going to feel the high of that. And it’s going to make you want to either save more by cutting the budget elsewhere or increase income and be able to save more that way. But it just gets you that feeling of you’re in the groove of it and it makes you start thinking about, “What can I do? Because I like that I got this set up and I like that I’m working towards this goal,” or that goal. And it makes you start thinking about other areas that you can improve upon to make your situation better financially.

Tyler Hafford: Yeah. And I love that you keep kind of coming back to the baby steps. It’s so important. We’re talking about baby steps. Abrin, I can just see the financial planner in you kind of spilling out on the table. What’s so important of that is-

Abrin Berkemeyer: Hey, I’ve been hitting the gym.

Tyler Hafford: I didn’t say spilling out of your clothes, spilling on the table. No, but what we’re doing in the baby steps and why it’s so important and Abrin’s hammering on this, is that when you’re taking those baby steps, you’re starting to build the behaviors you need to incorporate this stuff long-term, right? If it becomes natural to save, even if it’s just 10 bucks a month to start, you’ll start to build that behavior. And you’ll, like Abrin said, start to see those little wins of your accounts building up and doing those things.

Tyler Hafford: The problem is if you never take those baby steps, if you always think, “I’m just going to save down the road.” You’re never building that behavior and you’re never going to… Every year, you’re just going to have that same excuse. It’s out in front of you, that, “I’ll save next year.” Or, “I’ll just save a larger amount.” You’re never going to kind of just save yourself rich or save yourself for retirement. You’re never going to save… You have to take these steps and build these behaviors to reach those end goals.

Abrin Berkemeyer: Yeah, I’ll go back to my football analogy. You don’t want to be 30 years down the line and having to make two Hail Mary passes at the end of the game to win the game.

Tyler Hafford: Right.

Abrin Berkemeyer: You’d rather be competitive throughout the game, stick with the other team, move the ball down the field and keep the score even, rather than having to make a wish towards the end.

Tyler Hafford: Yep. No, I think it’s great. You put those building blocks in place and they’ll have some really good results down the road.

Abrin Berkemeyer: Yeah. So yeah, why don’t we talk about investing?

Tyler Hafford: Yeah, sorry. But it kind of goes to that, right? So IRA or retirement contributions in general, I think is a good thing to tackle right now. And it doesn’t necessarily have to be a 2021 thing. As ready as everyone listening to this podcast and Abrin and I are to be in 2021 and away from 2020, you can still make contributions to retirement accounts for the year 2020, depending on what the task picture is, or if you want to get some money away or how you want to tackle it. But I think thinking about that now, can be an important step for you, all right?

Tyler Hafford: Do we want to make some more contributions to retirement accounts in 2020? Whether that is, “All right, I can still get some more money into my Roth.” Which we’ve talked about in another podcast, please go back and listen to why I think a Roth is great. It was one of my favorite financial tools, I think, in the last podcast. But also, do we want to reduce taxable income this year? Do we have an ability to do that by making more contributions? So I think that’s something important to take a look at.

Abrin Berkemeyer: Yeah. So with reducing taxable income, you can start thinking you have until the tax deadline to contribute to a traditional IRA or Roth IRA, if you’re under the income limits. So you got till April 15th, that if you want an additional $6,000 of tax deduction that you didn’t take earlier in the year, then you can contribute that to a traditional IRA and get that in April. Or if you’ve got the cash on the sideline, then maybe just looking at how much cash you need for other things and allocating some money to that. But you’re spending a little time.

Tyler Hafford: Yeah. I think it can be a powerful tool, especially if you want to reduce taxes, but it gets into another piece. If you’re looking at your work retirement plan, you’re looking at your IRA, you’re doing those type of things, I think it’s a good time to rebalance and make sure you’re within the risk tolerance that you want to be. Especially, following this year. This year was really strange for a number of reasons. And back in March, the market had a massive dip and stocks came roaring back since then, up to 60% or 70%, something like that right now, right?

Abrin Berkemeyer: Yeah.

Tyler Hafford: There’s a good chance that the equity portion of your portfolio, the stocks in your portfolio, are now-

Abrin Berkemeyer: A larger portion.

Tyler Hafford: … larger portion than what-

Abrin Berkemeyer: At beginning of the year.

Tyler Hafford: Yeah, than what you intended them to be. And it may be a good time to trim that to get back in the risk tolerance you are. I think this is one of the most important pieces that are missed by people who are handling this themselves. It can’t necessarily be the set it and forget it method because you might be getting closer to retirement and have the risk tolerance right now of someone in their thirties or their forties, when you intend it to be someone who’s getting close to the finish line here, and you want to be getting more conservative. So starting to trim that and pay attention to that, I think is a great thing to start the year out with, and also something to kind of bookend it with.

Abrin Berkemeyer: Yeah. Especially, just given the current market environment, rebalancing is always something that should be on a little bit of a list in the back of your mind of, “I need to either do it on a six month or a one year in a role, just something to keep it consistent.” And usually, you only really need to do a rebalance is when things are out of whack, that’s why it’s called the rebalance. And things right now, just given the market performance of the year, are fairly likely to be out of whack.

Tyler Hafford: Yeah. And if you’re not a do it yourselfer and you are working with a professional, just checking in like, “Hey, are we kind of on target?” You should be, it should be something you’re reviewing with your advisor when you guys are sitting down and talking about these things. But I think it’s an important thing that gets missed quite a bit, is, “All right, are we still kind of within the guidelines that we were thinking that we’re going to be in for risk?” And if we’re starting to get outside of that, if we’re seeing a variance of 10%, let’s say, that’s something to be addressed. It’s something to take care of.

Abrin Berkemeyer: Yeah, certainly.

Tyler Hafford: So that kind of gets me into the last piece of this, right? And if all of these items that Abrin and I are talking about seem to be things that are just like, “I don’t want to do this. This is not something I want to spend my time and my energy on.” I think at least approaching a professional about it can be a good idea. If it’s something about reducing taxable income, certainly talking to your accountant is a great first step. If these rebalances and building budgets and debt pay down and all of that seems overwhelming or too time consuming, talking with a professional, even if it’s just that initial consultation for someone to say, “Yeah, there’s enough here to help you with.” Or, “This is something. Here are some steps to get you started.” I think is important because again, it is about building those behaviors. And if things seem like they’re a barrier to starting to build those behaviors, we got to figure out how to tackle those.

Tyler Hafford: And sometimes working with a professional can be that step that gets you enough to say, “All right, I’m going to start doing this.” Very much like if you’re going to the gym and you have no idea what you’re doing in there, working with a trainer can sometimes be enough to get you to feel comfortable with it. And a few months down the road you may not need the trainer, but you’re feeling more comfortable about, “All right, I know what I need to do when I get here. I got to do a treadmill for 15 minutes to warm up, and then I’m going to hit the weights. And then I’m going to finish up with another treadmill run,” whatever it may be.

Abrin Berkemeyer: That sounds like a terrible workout.

Tyler Hafford: You’re the guy who’s working out, I’m just trying to play the guitar.

Tyler Hafford: So just don’t let that be a barrier and go back to the first podcast, listen to all the things I think are important about finding that professional to help you out. You don’t want to be going to talk to someone who’s just pushing some insurance product or making a big commission off of it. But if you’re someone who is a fee only fiduciary, who does financial planning, is that their only thing, or they can help you with the management of the assets. Those types of people, people who has got CFP at the end of their name, those types of people will help point you in the right direction. And sometimes, it’s just starting that conversation. And I think that’s an important kind of thing to know if people are thinking, “Geez, this just sounds like a long to-do list of things I don’t want to do.”

Abrin Berkemeyer: Yeah. Just probably one of the best New Year’s resolutions is just to put a little bit more effort into things that you care about or things that you want to start caring about.

Tyler Hafford: Right.

Abrin Berkemeyer: And not going overboard, just doing little by little.

Tyler Hafford: Just like anything else, and you talked about it. You don’t want to burn yourself out and that’s with anything. And if I went home and played 10 hours of the guitar right now, I’d probably break it and not want to do it for the rest of the year. But just going home and learning a couple notes will certainly kind of keep me on my path to saying, “All right, I can do this.” And we’re rooting for everyone out there. A good financial plan and good habits, I think are really important. I think they’re not taught to us throughout our educational careers. And I think that’s a detriment to folks who are just trying to do this. So certainly, reach out to people if you need it. Always feel free to leave comments here or shoot an email to Abrin or I. If you go on Penobscot Financial Advisors, our website, you’ll find both of our emails. If you have just questions and you want some answers, we’re happy to kind of send responses and do those things.

Abrin Berkemeyer: Yeah.

Tyler Hafford: So all right, that’s all I got. Abrin, anything else?

Abrin Berkemeyer: No, I don’t think so. I don’t know what I’m going to choose for a resolution, if anything, but I mean, last year I kind of unexpectedly stopped drinking coffee just because I like to try and put things in check every now and then. And it was January and I was like, “All right, no coffee.” So that’s like, I only had… I mean, I let go of that a week ago, so I didn’t make it the full year, but it was never a real resolution anyway. But I think I’ll do something like that this year, just take a month off from something in your life that you feel like might be a little bit of a crutch or put a little bit more motivation into something that you feel like you could help better yourself for throughout the year. I got to figure out what that’s going to be.

Tyler Hafford: Sure.

Abrin Berkemeyer: I mean, I’ve got another day.

Tyler Hafford: All right, well thank you everyone. I hope everyone has a great New Year’s. I hope everyone is as excited as I am to get into 2021. Let’s make it significantly better than 2020.

DISCLAIMER: The foregoing content reflects the opinions of Penobscot Financial Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only, and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Thank you.