The new year marks a good opportunity to review your personal finances, making sure you're following best practices.
To help you along, Morningstar offers a list of 15 dos and 15 don’ts for your personal finances. Here are 10 of them. The analysis below includes some thoughts from Morningstar and some of my own.
Personal Finance Dos
1. Read finance books to build investing confidence. It’s a great way to learn things — from investing to budgeting — that will help you build wealth, especially if you’re a beginner.
2. Save first, spend last. It goes without saying that saving adds to your wealth, while spending subtracts from it. And remember, just because you earn more doesn’t mean you should spend more.
3. Max out your 401(K) or other tax-advantaged accounts. By doing so, you’re financing your retirement and saving on your tax payments at the same time. Nothing beats tax-free compounding of your assets.
4. Consider investing in bonds. Bond yields are close to 15-year highs, but have likely peaked. So now may be a good time to grab attractive yields while you still can.
5. Be a minimalist. Go for “low-maintenance, minimalist, no-babysitter-required portfolios,” says Christine Benz, Morningstar’s director of personal finance. “The main reason is that … you may have periods in your life when you don’t have the time, inclination, or ability to manage your portfolio."
Personal Finance Don’ts
1. Checking your portfolio every day. That can make you freak out about short-term market moves and trade more frequently than you should. You may end up buying high and selling low as a result.
2. Feeling shame from financial mistakes. We all make mistakes, so there’s no need to be embarrassed. The key is to own up to your mistakes and figure out a way to avoid repeating them.
3. Dissing the 60/40 portfolio. A portfolio of 60% stocks/40% bonds performed poorly in 2022, returning negative 17%, according to JPMorgan. But it bounced back in 2023, returning 14% through mid-December. The diversified portfolio isn’t dead.
4. YOLO, NFTs, meme stocks. YOLO means you only live once and shouldn’t miss out on speculative investments like cryptocurrency. NFTs, or non-fungible tokens, already have bitten the dust, and so have many meme stocks.
5. Keeping up with the Joneses. There are two things to remember when your neighbors brag to you about the bountiful riches they are making on their investments. First, they may be lying. Second, they may be lucky. If you have a diversified portfolio that moves broadly in line with market indices, you’re likely doing fine.
