If you’re like most people, you probably made a few New Year’s resolutions. In fact, we’re willing to bet your resolution was to either eat better or exercise more. We’re not psychics, by the way. It’s just that studies show those are the two most common New Year’s resolutions.

Aside from health and fitness, the Journal of Clinical Psychology notes that financial resolutions rank No. 3 on the list of the most popular promises people make to themselves each year. Sadly though, the journal also notes that only 8% of people are successful in achieving them. Most fail fairly quickly.

We bring this up to ask an important question — one that we rarely ask readers (but probably should)…

Are you investing enough?

Do A Simple Budget

It’s an honest question. And you don’t need to undergo some sort of financial crash diet to figure it out. All you really need is a basic household budget and a little time around the kitchen table with the people in your life who spend your money.

Budgets are like balance sheets. They’re pretty simple, but seem to somehow scare people silly. It’s not the list of expenses that makes people uncomfortable; it’s the “other” number that makes them weak in the knees — their income. People just hate to stare that number in the face.

Chances are you think you’re underpaid. We can worry about that later. Why? Because even with a larger paycheck, most folks end up falling into the same bad habits. It’s called “lifestyle creep”.

Get a promotion at work? Most people end up buying that new car they’ve been eyeing rather than paying down debt. And therein lies the problem. So here’s our advice: don’t focus so much on what you make.

Make a spreadsheet in Excel (or for the less tech-savvy, take out a sheet of paper) and add up what you spend. Be complete and accurate, or it doesn’t count.

If you’re blowing $12 at Starbucks every morning, it’s time to reevaluate whether that double-shot mint latte is really worth it. Yes, it’s only twelve bucks, which most of us can regard as nothing. But it adds up to more than $3,000 over the course of a year, and that’s something. In fact, that really starts to grow over time when the miracle of compound interest kicks in.

Yes, the Starbucks example is a bit of a cliche at this point. But it’s still important to consider your spending. Be honest with yourself. It could be your cellphone plan, your streaming video subscriptions, even your car payment.

Discretionary Vs. Non-Discretionary

Now, we don’t talk much about personal finance around here. We normally spend our time looking for investments — either safe, reliable income payers or more aggressive growth picks. We even touch on short-term trades and options.

But getting the most out of your personal budget is important. And it’s something worth discussing from time to time, if only briefly.

What you ultimately need to find with your budget is your total non-discretionary spending. This is what you must spend to keep your household running, and it should be subtracted from your monthly take-home pay.

The rest is discretionary income — funds you can do whatever you want with. Maybe that’s new clothes… maybe it’s an annual vacation… it doesn’t matter. But after you make out a budget, ask yourself this:

“Am I really putting away enough money to invest and reach my long-term goals?”

Some people go so far as to put investing in the non-discretionary category. Others leave it in the discretionary column. It really doesn’t matter where it gets listed so long as you’ve thoroughly considered whether you’re socking enough away.

Fact: You will never see an individual or family go through a round of budgeting and NOT find they could spend less and invest more. It boils down to priorities. The occasional splurge is just fine for most people. But what if your top financial priority was ensuring you spend as little money as possible so that you could invest? What if that was your way of life?

We’re not saying everyone should do this. We’re just saying it’s worth thinking about.

Closing Thoughts

Our advice: If you haven’t already, make a household budget based on three months of spending data. Write down your spending priorities, and seek to right-size your monthly allocation to your investments. You may be surprised by what you see.

We’ll even take it a step further. Saving to invest more is good, but having the right mix of assets in your portfolio is a lot more important than people think.

A good financial advisor will tell you this, and they may even recommend something like a mix of stocks and bonds based on your age. That’s fine, but it’s ultimately up to you. And while we are not your financial advisor, longtime readers know that we’re fans of an 80/20 approach.

It works like this… Put 80% of your money in to safe, conservative investments (like an index fund, blue-chip stocks, or safe dividend payers). Then take the other 20% and really go for it. Spread this allocation among aggressive positions in companies that have the potential to deliver substantial long-term returns. It could be a drug company working on a novel therapeutic drug… a tech company that could the next big household name… you name it.

That’s one of the reasons why we make an annual list of investment predictions for each year.

The goal of this report is simple… At the end of each year, our colleague Jimmy Butts gathers a team to research, debate, and discuss what the next year (and beyond) are likely to have in store.

Some of our predictions may sound a little unconventional… possibly even a little “shocking” to some readers. That’s okay though, because the whole goal is to think outside the box and uncover opportunities that could become life-changing investments.

Of course, not every prediction will pan out. That’s where discipline, allocation (and stop-losses) come in handy. But if you can carefully invest in a few potentially life-changing ideas each year before the crowd catches on, then the returns should more than make up for the ones that don’t pan out. And that’s how you really move the needle on your portfolio overall.

To learn about our latest set of investment predictions for 2022, go here now.