Moving the Target

Adam M. Grossman

IT’S GETTING TO THAT time when New Year’s resolutions start falling by the wayside. Most people don’t worry too much about this. But it would be nice if there were a way to give resolutions more of a shelf life.

Todd Herman, a performance coach who has trained dozens of Olympic athletes, offers one possible solution. He calls it the “90-day year.” The premise is that a year is just too long a timeframe. As Herman puts it, if you have a yearlong goal, it’s like trying to shoot an arrow at a target so far away that it’s beyond the horizon.

Hal Hershfield, a psychology professor at the University of California, Los Angeles, provides another perspective on the problem. Hershfield has done research on the choices that consumers make, especially those involving finances. One of his findings: We don’t always make decisions that are in our best interest because we see our future self as a different person. Sure, we recognize that the person we will be tomorrow is the same person we are today. But the further out we look, the more likely we are to see our future self as a separate person and, because of that, we’re less interested in helping that other person.

The key, then, is to bring our future self closer. Or, in Herman’s terms, to bring the target closer so it’s no longer beyond the horizon. That’s why he recommends 90-day “years.” In other words, split the traditional year into four 90-day mini-years, each with smaller goals. That’ll make each of those smaller goals much more achievable.

How can you apply this concept to your finances? I recommend drawing up a personal finance calendar each year. What should that calendar look like? For the reasons cited by both Herman and Hershfield, you want to do the opposite of traditional New Year’s resolutions. Instead of a grandiose, long-term goal, think small and plan short term. Choose goals small enough that you’ll be able to complete them in 90 days.

What specifically should go on this calendar? It depends on your age and life stage, but here are some ideas.

1. Investments (Part I). In my view, the most important element of any investment portfolio is its asset allocation. That’s because—to a great extent—asset allocation will dictate both your risk level and your potential returns. This is the place to start in evaluating your investments, and I would revisit it regularly.

2. Investments (Part II). After checking your overall asset allocation, you’ll want to check the breakdown within each category. Within stocks, is your portfolio tilted toward domestic stocks or international? Large cap or small? Growth or value? And don’t be complacent about bonds. They carry risk, too. Do you own Treasury bonds, corporate bonds, high yield bonds or something else?

3. Investments (Part III). The final step in reviewing your investments is to check your individual holdings. If you’ve accumulated a collection of individual stocks and other holdings over the years, you’ll want to review them regularly. This is especially true if you have an outsized position in any one stock, and even more so if it’s your employer’s stock.

4. Account choices. The tax code, as I’m sure you know, treats traditional IRAs, health savings accounts, 529 plans and other account types very differently. You want to make sure you’re taking advantage of every opportunity available. As your circumstances change, and as the tax code changes, it’s important to review how much you have in each account and how much you’re adding to each.

5. Household budget. There are two schools of thought on budgeting. The first, popularized by the notion of the “latte factor,” argues that you should control little expenses because they can add up over time. The opposing school of thought argues that you really only need to worry about big line items. For example, shave $300 a month off your mortgage by refinancing and that’ll accomplish far more than cutting back on coffee and other small expenses.

My view is that both are important, but they’re separate tasks. I’d set up one quarterly task to look at the big picture and another to scrub through smaller line items.

6. Insurance (Part I). As your personal life and your financial life evolve, make sure your insurance coverage remains aligned with your needs—especially your disability and life insurance.

7. Insurance (Part II). Insurance coverage levels are most important. But a separate task is to shop around for the best deal on that coverage. Once insurance agents have sold you a policy, they don’t have a big incentive to review it regularly. But if you ask them, they will.

8. Estate planning. If you expect your assets to exceed the federal estate tax exclusion, especially once the current high exclusion sunsets in 2026, you’ll want to make this task a big part of your annual schedule. While estate planning tasks can feel like drudgery, I believe it’s worth the effort. Remember, the federal estate tax alone will take 40 cents out of every dollar you bequeath that’s above the exclusion, and state taxes may also be an issue.

9. Charitable giving. You probably receive a flood of charitable solicitations every December. I understand why charities do this, but the result can be haphazard giving. If you have a substantial charitable budget, I’d make it an annual task to review the overall amount, the allocation among recipients, the timing and your process for giving.

10. Taxes. If you’re like most people, you’re so glad when your tax return is done each year that you’re happy to file it away and move on. But it can be invaluable to spend some quality time with your accountant after your return is completed. Ask for his or her observations and recommendations, especially if your tax situation is complex or you have a high income.

11. Risk management. Financial risk extends beyond your portfolio, so take time each year to think more broadly about risk. Do you have a safe for valuables in your home? Do you use a password manager to generate online passwords? Do you use two-factor authentication, especially on your email? Do you have verbal passwords set up with your financial institutions? Do you have a mechanism for monitoring your credit? Such questions may not seem urgent today—but, if something goes awry, you’ll be glad you asked them.

Adam M. Grossman’s previous articles include Those Messy HumansWhat We’ve Learned and Unhelpful Advice. Adam is the founder of Mayport, a fixed-fee wealth management firm. In his series of free e-books, Adam advocates an evidence-based approach to personal finance. Follow Adam on Twitter @AdamMGrossman.

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