KEY POINTS:

  • (1) Max out Your Roth IRA Early

  • (2) Automate Your Savings

  • (3) Make Sure You Have an Adequate 3-6 months Emergency Fund

  • (4) Create a Budget...or a Spending Plan

  • (5) Set an End of the Year Net Worth Goal

  • (6) Re-evaluate Your Insurances

  • (7) Plan for Expenses, and Fun!

  • (8) Get Professional Help

The year 2021 is here.  In our opinion, 2021 has it pretty easy.  I mean, how much worse can it get after 2020?  Joking aside, the beginning of the year presents a great time to take inventory of life and evaluate your financial health for the next 365 days.  Here are a few New Year’s financial resolutions to get you started.

(1) Max out Your Roth IRA Early

If you’ve been a member of ODs on Finance for any amount of time, then there’s no doubt you’ve heard about the mystical unicorn known as the Roth IRA.  The Roth IRA is an investment vehicle designed to grow your money tax free.  So why fund it at the beginning of the year for 2021?

Since the Roth IRA is on a long term trajectory as a retirement vehicle, one of the most important aspects of growth will be time in the market.  Most optometrists will fall above the income limits of the Roth IRA - if your modified adjusted gross income (MAGI) is higher than $140,000 if you're single or $208,000 if you're married filing jointly for 2021 - but never fear!  The backdoor Roth IRA is a fantastic way to get around this and we have a how-to guide right here:

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Roth IRA for yourself (Additional $1,000 if over 50 y/o)

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Roth IRA for your non-working spouse if applicable (Additional $1,000 if over 50 y/o)

(2) Automate Your Savings

Pay yourself first.  It’s a phrase you may have heard before, but what does it actually mean?  Essentially, paying yourself first means automating your savings so that money is automatically distributed to your investments and retirement accounts before you actually get to see any money.  


Automating your savings works at a psychological level.  You create a safety on your money if you put it out of reach before you even have a chance to see it and possibly spend it.  Remember when you were a kid and the chocolate cake was hidden after you finished those peas and carrots - yes, this is the adult version of that.

(3) Make Sure You Have an Adequate 3-6 months Emergency Fund

One thing the year 2020 has taught us is that nothing is certain.  Life can change at the drop of a pen (or the ill-timed ingestion of a bat).  Having cash reserves, AKA an emergency fund, is key to getting through tough times plagued by no work or low revenue.  Here is a simple rule of thumb: have 3-6 months of wages on hand as your emergency fund. 


This will help cover an unforeseen expense or lack of cash flow, if it were to arise.  (If you are a student and reading this - first of all, kudos to you!  Second, try to have about $1000 stocked away just in case.)

(4) Create a Budget...or a Spending Plan

One of the easiest ways to fall into a cycle of perpetual debt and poor financial habits is from spending beyond your means.  Often, this is simply rooted in the daily grind and not necessarily linked to lavish living.  The easiest way to combat this and get yourself on the road to financial freedom is to create a budget.  


Your budget should outline your projected monthly expenditures and should ideally only include NEEDS, not wants.  There are many ways to set up a budget including a spreadsheet, a whiteboard, or an app like YNAB (You Need a Budget) or Mint.


Think the term “budget” isn’t sexy and something your old man used to do?  Call it a Spending Plan instead.  See?  Instant sexiness right there. 

 "Want to spend your money guilt-free and hate tracking your money? Consider developing a strategy called a REVERSE-BUDGET.  

Example: Once a month when you get all income, immediately send it to your 401K/Roth IRA, monthly FIXED Expenses such as rent and student loan payment, in addition to other short-term investment vehicles. Then whatever is left over, that is all yours to spend GUILT-FREE on whatever you desire, even if it is for that Coachella Tickets. But a word of caution, if it is running low toward the end of the month - it's time to start packing those sandwiches for work!"

(5) Set an End of the Year Net Worth Goal

I’ll admit it, I’m a vision board guy.  Up in both my home and actual office, I have a white board detailing what my goals are and how I will achieve them.  In one tiny corner of the white board, I write a dollar amount.  This is my target net worth for the year.  Note that it is a tiny section of the board, because it isn’t something that defines me, but something that still finds its place on my goals list.  A target net worth helps you calibrate all other aspects of your financial health, because truth be told, financial health comes down to numbers.  


PS Your net worth is about YOU.  Remember to be realistic with your net worth goals.  It shouldn’t be measured up to others, because everyone comes from different backgrounds.  And if you’re a new grad and it’s negative - there is nothing wrong with that!  You will soon be up to a positive number in no time as you continue to make financially smart decisions. 

(6) Re-evaluate Your Insurances

The beginning of the year is an important time to look over all your insurance premiums.  Peruse rates and see if there are any drastic increases.  If you find increases, see what you can do to reduce them such as talking with your insurance agent or shopping around and leveraging different providers.  Phantom insurance rate increases can put you on the fast track to losing money - make sure to be aware.

(7) Plan for Expenses, and Fun!

One big misconception a lot of ODs on Finance members have is that the founders (Dat and myself) don’t believe in having fun or spending money and simply funnel all our earnings into our investment portfolio.  While this may be true to an extent, we still believe in taking care of yourself and enjoying life.  Just be smart about it.  While financing a luxury car while over a million in debt is a ridiculously bad idea; taking a quick vacation to celebrate finishing a tough quarter or certain loan pay off can be a great idea!  Make sure to be wise, plan out your expenditure (remember that budget, err, spending plan) and understand the why behind the purchase. 

(8) Get Professional Help

Let’s face it.  We didn’t go to school to become financial planners or accountants.  In fact, many ODs cringe at the thought of money.  That is OK! While we advocate for DIY investing, sometimes finances are simply too overwhelming or just plain uninteresting.  This is why we have created strategic partnerships with financial professionals from nearly every aspect of the money world.  


We heavily vetted all of these individuals to make sure that they give you the best experience possible and maximize your financial potential.  Give them a call or shoot them an email:


Wishing everyone health, happiness and financial prosperity!

 


Want to learn how to build your own portfolio? Check out  The Optometrist's Guide to Investing 101

Want to get a full blueprint on How to start? Buy our Book The Optometrist's Guide to Financial Freedom

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About Dr. Aaron Neufeld

Dr. Aaron Neufeld is a Co-Founder and editor for ODs on Finance. He owns a group private practice in Los Altos, CA and values a debt-free lifestyle as well as serial investing in real estate and index funds. Contact him: aneufeldod@gmail.com

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