The New Year is here! With it comes a collective motivation to take advantage of our semi-clean slates and become more of the people we wish to be. Many attempt New Year’s Resolutions, and from all of the articles about them on the web, I think few survive. This year I’d like to take the time to outline a financial carrot and stick incentive for some of the more popular resolutions to hopefully motivate you to move in the direction of your goals.
- The Carrot: You can actually earn money by losing (a lot of) weight! Healthywage.com offers a free challenge that pays you $100 to bring your body mass index from above 30 (considered obese) to a healthy level (below 25) within one year. Check out the details on their website, as well as an added incentive: if you bet $300 of your own money, the prize comes to $1,000! Prize money comes from corporate sponsors, and your weight must be verified by a third party.
- The Stick: In 2012, a staggering 40% of large and mid-sized companies began penalizing workers who were obese and/or who smoked with higher health care premium and deductible costs than their colleagues. This trend is growing quickly, and it could just be a matter of time before it hits your own insurance premiums (or has it already? Our agency began charging higher premiums to smokers this past year).
Pay Off Debt
- The Carrot: You can deal with your creditors directly and attempt to negotiate smaller debt loads, which is like free money to you (check into the tax consequences of doing so). Another carrot is to join the debt movement being launched today in the personal financial blogosphere with a goal of inspiring, helping, and motivating people to pay down $10 million worth of debt over the next 90 days. Submit an application and you could be awarded one of several scholarships towards paying down your debt even faster.
- The Stick: We were paying approximately $75 per month in interest payments to carry our debt back in 2009 when we decided to get ‘gazelle intense’. If we had decided to pay off the debt in the amount of time the creditors wanted, we would still be paying on most of it today. Since paying it off in September 2010, we have saved $2,025 of our money from going into the creditors’ pockets in interest payments. Calculate how much interest you are paying per month and multiply this out several years from now. Do you want to pay this to a company, or to yourself?
- The Carrot: Let’s say you consume 3 packs of cigarettes per week. At an average cost of $5.98 per pack, you are looking to save roughly $932.88 per year by quitting your habit.
- The Stick: It should come as no surprise to you that even though the tax rate on cigarettes has been increased more than 100 times across the US since 2002, states are moving to raise it even higher in order to cover budget shortfalls. The average state tax rate on a pack of cigarettes is $1.49, with an additional $1.01 in federal excise taxes. That means you are paying approximately $390.00 in extra taxes each year (based on consuming 3 packs per week).
Start a Savings Fund to Purchase a Home
- The Carrot: Depending upon your income, you may qualify for a matching savings account called an Individual Development Account (IDA) to help you reach your goal (maximum matching is typically $2,000, and the rate depends on the program). “IDA account holders must save a minimum amount on a fairly regular basis, within a certain time frame, and ultimately use their savings for specific asset-building purposes, such as the purchase of a home…”
- The Stick: Certainly not everyone needs, wants, or should purchase a home. Renting is a perfectly fine option. If you do want a home, you will get nowhere if you don’t start to save for the down payment as soon as you can. On top of that you will need closing costs, maintenance costs, moving costs, etc. Wait too long to get started and these historically low interest rates we’ve had over the last few years may be out of reach for you.
Start an Emergency Fund
- The Carrot: Get a jumpstart on your emergency fund savings ($150 bonus) by opening a Chase Checking Account, depositing a minimum of $100 within 60 days, and setting up direct deposit. You can then transfer your $150 bonus to an actual savings account designated as your emergency fund, or keep this account as your emergency fund and have your employer direct deposit only the amount of your paycheck that you will be putting into savings each month.
- The Stick: There is a saying that most Americans are 1-2 paychecks away from declaring bankruptcy. And it’s not just a saying; a recent survey conducted on behalf of a financial consortium shows that one in three Americans would be unable to make their mortgage or rent payment beyond one month if they lost their job. Have you calculated how long your savings will last you in the event of losing your household’s income?
Start a Retirement Account
- The Carrot: In this article I have outlined how to potentially get double tax incentives for low to middle income households who contribute to retirement accounts through the Saver’s Tax Credit this coming year.
- The Stick: Have you looked at your social security statement in the last few years? How much can you expect from social security per month if you did not save any money for your retirement (and if the fund stays liquid enough to pay you when it’s your turn)? If you don’t feel like getting the statement out, I can tell you that the maximum possible benefit for a worker retiring at age 66 in 2011 is $2,366; the average, which is where most of us will be, is around $1180. It’s not likely to pay your monthly bills in retirement, let alone the additional medical costs and (hopefully) entertainment/travel things you’d like to do with your time. If you haven’t already, start saving today!
What are your New Year’s Resolutions?
Other Articles You May Enjoy:
Get Out of the Land of Conditional and Own Your Resolutions
Double Tax Benefits for Low to Mid Income Households Who Contribute to Retirement Accounts
The Zero Sum Financial Game: Ideas to Help You Juggle the Month
Save Money if You are Living Paycheck to Paycheck