Focus on Achievable New Year’s Resolutions
This is my least favorite time of the year. Some people look forward to the “clean slate” of a new year, with all the potential and possibilities.
I don’t look forward to starting at zero, though, and wondering how I’ll have a profitable year again. I get anxiety about this—because sometimes you start the year behind a couple of percent, losses increase, and then you're trying to play catch-up. I hate it.
Remember, the markets do whatever makes fools of people most of the time. And I have a hunch that the markets will make a fool out of me in 2023… at least once. Nobody can outsmart the markets 100% of the time.
Anyway, as you can probably guess, I’m not a big fan of New Year's resolutions. I mean, if you want to become a better person, why do you need to wait until January 1 to do it? Why can't you be proactive in the middle of the year?
So, I don't do New Year's resolutions. I never really have. But that doesn’t mean you should avoid goals this year—and really, the best thing you can do is separate sensible and achievable goals from unrealistic ones.
Do You Have Goals for 2023?
It's good to have goals. For instance, if you have savings goals, that’s a great place to start. Maybe your goal is to save 40% of your income. That'd be a good goal. I can get behind that.
What about your investing goals? A lot of people will say they want to make 20%. Well, that's not a realistic investing goal. A realistic investing goal is netting 8.4%. That's what the Awesome Portfolio has returned annually, on average, for the last 50 years.
Now, last year was a tough one for the Awesome Portfolio, but it ended up okay. It could have been a lot worse, especially considering the rockiness we experienced in 2022.
The main thing to keep in mind is that sometimes things go well in the markets, and sometimes they don’t. That’s the reality of it.
Ultimately, it pays off, in the long run, to keep a level head by sticking to an investing approach that helps limit risk when things turn south. The most successful long-term investors must plan for the unknown… because surprises will happen.
Debt Is an Expression of Optimism
This is a big one: If you have debt, you should make it a priority to pay off all your credit cards this year. That’s an outstanding goal.
I've known people with lots of credit card debt, but it's possible to pay it all off in a year. You should aim to do that.
All of us are dealing with uncertainty. All of us are dealing with the unknown, and we make our financial decisions without being able to predict the future.
For example, if you knew that you were going to get laid off in 2024, would you buy a house in 2023? Of course not. But we can't predict the future. We don't know what’s going to happen. The only thing I'll say is that things usually work out in the long run.
Something that I'll talk about in my upcoming book in 2024, NO WORRIES: How to Live a Stress-Free Financial Life, is that debt is an expression of optimism.
Of course, some people take on irresponsible debt. But if you’re in a financially sound situation and, say, buy a house and take out a giant mortgage or buy an expensive car, you’re taking on that debt because you’re confident that you’ll be able to pay it off.
Debt doesn’t always have to be this huge negative. Just make sure you’re in a position to take it on. Don’t try to live beyond your means.
Big Decisions Outweigh the Small Ones
Finance is a psychological game. This is part of my whole shtick about how some people spend too much money, but other people spend too little.
You want to spend the right amount of money, which is much easier said than done. When it comes to personal finance, your strategy should mirror the way you play poker: tight and aggressive.
Don't waste a bunch of money on stupid stuff, but, when you can, go all-in when you see something you like.
If you want to make your coffee at home, that's fine. And if you don't, that's fine too.
Remember, it's not a million small things that determine if you're wealthy. It all comes down to a couple of big decisions that you will have at some point in your life.
Jared Dillian