The end of a year is a natural time to reflect, giving thanks for the good things of the past year and drawing lessons from the bad. In your own finances, what has gone well this year and what hasn't? How would you score your performance in each major area: generosity, saving, investing, and spending? Where would you like to make improvements in 2014?

What follows is a series of ideas to help you plan for the new year. As you read, check the items most relevant to you. If you are married, each of you should go through the article separately, then compare notes. Through prayer and conversation, come up with your Top 10 list — the action steps you believe will be most helpful in 2014.

[If you choose to print out this article, we recommend downloading the printer-friendly PDF version, which includes the month and page number for each referenced article.]

Call it the year of the cliffhanger. We started 2013 teetering on the edge of the "fiscal cliff" and neared the end with the government closed and our leaders walking the country dangerously close to the edge of debt default. Even worse, what overshadowed the issues at hand was a bunch of verbal pushing and shoving among politicians. Instead of a display of other-centeredness from people who are, after all, elected "by the people, for the people," we saw much in the way of self-centeredness. Instead of grand displays of vision and purpose, we saw pettiness, partisanship, and even pork-barrel quid pro quo deal-making.

Mindful of just how easy it is to see specks in other people's eyes without noticing the redwoods growing in our own, let's make this discussion of vision and purpose more personal. Do you have a financial vision for your household? Have you thought about the overarching purpose of the money you've been entrusted to manage? If so, how well have you kept your financial decisions in sync with that purpose this year?

A great way to approach a new year is to remember the vision God has for you, be clear about your God-given purpose, and commit to following the financial priorities that flow from that purpose.

Remarkably, what the God of the universe wants most from us is a relationship with us (Revelation 3:20). When we begin that relationship, we discover more about His plans for us, which includes prospering us (Joshua 1:8, Jeremiah 29:11). It's easy to look around, play the comparison game, and think we're not doing as well as this person or that. But entering your income at GlobalRichList.com will quickly provide a healthy reminder of just how abundantly we have been prospered.

It's also important to understand why God prospers us: "You will be made rich in every way so that you can be generous on every occasion" (2 Corinthians 9:11). Jesus said he came that we might have "life to the full" (John 10:10). That doesn't mean we'll never experience difficulty. In fact, Jesus assured us we would have challenges (John 16:33). But he promised to always be with us (Matthew 28:20) and that there will always be a purpose for the challenges we face (Romans 8:28).

When we enter into a relationship with Christ, the Bible says our very identity is transformed (2 Corinthians 5:17). Financially, our culture-created, self-focused consumer identity gets cast aside. We become stewards — managers — of God's resources. This is clearly depicted in the Parable of the Talents (Matthew 25:14-30).

Many people misunderstand this stewardship role, seeing it as a heavy, duty-bound burden. For them, it's a fearful responsibility that they carry, concerned over breaking, losing, or otherwise messing up in their care of God's stuff. But this isn't the message of the Parable of the Talents at all.

Remember the third servant — the one who didn't break or lose any of God's stuff? In fact, he returned God's stuff to Him in the exact same condition it was received. Was he affirmed? Patted on the back for not making any mistakes? Held up as a role model for guarding God's money against loss? No. In fact, it was quite the opposite. He was harshly rebuked as "lazy" and even "wicked"! Ouch.

Instead, God affirmed the two servants who took appropriate risks and multiplied what had been entrusted to them. In God's economy, we are entrusted and empowered to make something more of what we have been given. The multiplication is best seen when we use money in ways that enable us to fulfill the three overarching purposes of our life: To love God, love people, and use our God-given talents and passions to make a difference.

These purposes lead to a countercultural way of prioritizing the use of money. Our culture teaches us to make lifestyle spending our highest financial priority. Next come the debt payments that naturally flow from these "spend-first" priorities. If any money is left over, we should save, invest, and maybe even give some, but there usually isn't much left for any of that.

Scripture flips this approach on its head. It makes clear that God wants us to approach life (including, of course, our use of money) from an other-centered point of view, which is why He teaches us to make generosity our first financial priority (Proverbs 3:9). He wants us to use His resources to care for the poor (Proverbs 19:17), share the Gospel (Matthew 28:19-20), and help provide for those who teach us His Word (Galatians 6:6).

His Word teaches us to avoid the bondage of debt (Proverbs 22:7), make sure we have a savings reserve (Proverbs 21:20), invest patiently (Proverbs 13:11), and then, after those priorities are handled, to build our lifestyle on what remains (Luke 16:11-12).

As you think back on 2013, how effectively did you prioritize your use of money to fulfill your God-given purposes? If you're not satisfied with your answer, now is an excellent time to make adjustments for the year ahead!

Following God's purposes and priorities is a roadmap for a financial life that works exceedingly well.

Selecting your "Top 10"

With this big picture perspective in mind, let's think and plan more specifically for the New Year. As you read the many ideas that follow, put a checkmark next to any ideas that strike you as particularly relevant and beneficial. Once you've gone through the entire article, review the items you checked. From that group, pick the 10 suggestions that seem likely to offer the greatest benefits at this stage of your life. Assign priorities by numbering the items 1 through 10, starting with the most important one. Items 1, 2, and 3 become your immediate priorities for 2014. We suggest waiting to address any of the other items until these first three tasks are completed. Trying to do too many things at once is often counterproductive.

Each suggestion below is accompanied by one or more footnotes, most link to articles published in 2013. The Sound Mind Investing Handbook has additional helpful material on the various topics. You can pre-order the soon-to-be-released 6th edition![1]

Put God first

Sound Mind Investing is all about helping you become a better, more successful investor. But helping you build wealth is not our ultimate goal. Our goal — what motivates all that we do — is to help you excel as an investor so that you can excel at providing for your family (1 Timothy 5:8) and supporting God's work (2 Corinthians 8:7).

Look to see how God is at work in your circumstances. The year that will soon end has provided plenty to be concerned about, or, to put it more constructively, plenty to pray about. The Bible says, "In all things God works for the good of those who love him, who have been called according to his purpose" (Romans 8:28). Tough times are opportunities to see where God is at work. He may be challenging you to grow in your faith.[2]

If your concerns were especially centered on retirement, consider what a truly biblical retirement may look like.[3] To paraphrase what someone once said about life, "The thing about a life of faith is that it is so daily." We can go through seasons where we're confident that we're doing all the "right things" yet not seeing much fruit. Be encouraged that there are rewards for faithful discipleship — they may simply be beyond what you can see or even imagine.[4]

Take the next step in your journey of generosity. When you first grapple with the topic of generosity, it's natural to wonder: "How much should I give?" As you grow in your faith, that question often turns into, "Lord, what next step are you asking me to take on this journey of generosity?" The answer is best found through time in the Word, time in prayer, and by seeking trustworthy counsel.[5] If you're not giving at a level that fully expresses your gratitude toward — and trust in — God, start today.[6] Some believe that behavior change needs to be preceded by a change in attitude. It certainly can work that way. However, when Jesus said, "For where your treasure is, there your heart will be also" (Matthew 6:21), He was emphasizing the opposite reality. In essence, simply choosing to act — to take the next step in generosity, for example — is likely to give you an even stronger heart for generosity.

Draw closer to God. For many people, meditating on God's Word can be enhanced with God-honoring music. We hope you requested a free copy of the special Christmas music CD, Hearing Winter, written and performed by one of Austin and Susie's daughters-in-law.[7] Our supply of free CDs has run out, but you can still purchase a copy of this special recording at AngiePryor.com. Speaking of Christmas, if the materialism of the season is getting you down, one of the best antidotes is gratitude. Put a plan in place now to make sure you remember all the blessings that each year brings.[8]

Level 1: Strengthening Your Foundation

Use money to love the people in your life well. If you're married, the most important person in your life is your spouse. Money can be a divisive issue between spouses. But often, financial disagreements are rooted in a clash of temperaments. One of the most effective steps for working as a team — financially and otherwise — is to understand your own temperament, as well as that of your spouse.[9]

Be proactive in consciously planning how to best use the resources God has entrusted to you.[10] The best tool for doing so is the often-dreaded budget. If you're not crazy about this idea, know this: non-budgeters tend to view budgets as work, drudgery, and generally not a lot of fun. Budgeters, on the other hand, say it provides them with a sense of freedom and confidence. Since everything belongs to God and you are His manager, shouldn't you have a tool that helps you account for how you're doing at managing His resources? The good news is it's never been easier to use a budget. Try using an online budget and you'll see what we mean.[11] Once you're set up, learn the answers to two of the most common questions about online budgeting: how to account for your paycheck and its various withholdings, and how to handle cash transactions.[12] You'll know you've got the hang of it once you've learned how to use your budget to actually manage your cash flow.[13]

Remember that every financial decision is a spiritual decision.[14] That's because everything belongs to God.[15] While even the most mundane financial decisions matter, bigger decisions usually have more at stake financially and spiritually. So, if a new home is in your future, be sure to buy a house in a way that the house doesn't own you![16] Vehicles typically cost less than houses, but buying a vehicle is also a crucial purchase decision. One key to getting it right is to pay cash for a vehicle, but there are eight other keys to follow to ensure a wise vehicle purchase decision.[17]

Before you start investing, ditch your debt and build savings. Wise money management is a step-by-step process. Don't use a home-equity line of credit or credit card as an emergency fund.[18] Instead, initially build a savings account that's sufficient to cover one month's worth of essential living expenses, keeping it in a money-market fund or money-market account where it will be readily available. For savings goals of at least three or four years, consider a GNMA bond fund.[19]

With at least a small savings reserve in place, it's time to work toward eliminating any debts other than your home mortgage. If your debts include student loans, and if those loans are becoming a burden, don't default. The consequences could be dire. Instead, take advantage of one of several programs designed to help you avoid default.[20]

Once you're out of debt, add more to your savings account until you have six months' worth of expenses tucked away. You may be eager to start investing while you still have debt, but without an emergency fund, if something goes wrong you may end up taking two steps back before you can take another step forward. So, build an adequate savings account first, and then invest.[21] You might even consider pursuing an appealing, yet seemingly unrealistic, dual goal: building savings while improving your health (the two go together surprisingly well).[22]

Taking these steps will help ensure that you could pass a personal "financial stress test."[23] Such tests are now required of our nation's largest banks, one outcome of the 2008 crisis. It would be helpful to put your own finances through a stress test from time to time as well.

Maintain a program of continuous learning. As with so many things in life, there's always more to learn about wise money management. Faithfully reading this newsletter and the SMI blog will keep you in tune with the latest developments in the world of personal finance. But books are worth reading too. For a recommended reading list, look no further than a list of favorite books from the SMI staff.[24] Another great way to learn is to teach others. If you have kids or grandkids, the sooner you start teaching them about investing, the better.[25]

Level 2: Developing Your Investing Plan

To invest well, know yourself well — including your investment temperament.[26] Emotion plays a huge role in investing. Unfortunately, it often plays a negative role! Be vigilant to keep fear and greed out of your investment decisions.[27] It is because of the destructive role that emotions play in investing that SMI's investment strategies are based on mathematical formulas rather than group-think, hot tips, or intuition. For evidence that formulas trump intuition in making wise decisions, read the work of Nobel Prize-winning economist Daniel Kahneman.[28] Using an objective, mechanical approach to investing is one of the best ways to avoid common investing mistakes.[29] Another way is to make use of what is arguably the single best tool for keeping your emotions in check, especially at times of high market volatility — a written investment plan.[30]

Become a more knowledgeable money manager. We do not recommend that you use individual stocks in your investment portfolio. We prefer mutual funds, because of their long list of benefits,[31] including inherent diversification. They come in a wide variety of investment styles. Some critics argue that the fees charged by mutual funds are too high.[32] In fact, according to the conventional wisdom, one of the top ways to evaluate a fund is to focus on its expenses. We have a different perspective.[33] To be sure, some funds do charge exorbitant fees, especially those with front-end sales charges. But there is little connection between the fees charged by no-load funds (the types of funds we recommend) and their performance. That said, it's important to understand the different types of commissions and fees so you can protect yourself from bad purchases.[34]

A type of mutual fund quickly growing in popularity is driving fees even lower. If you're not familiar with exchange-traded funds, it's time to learn about them.[35] ETFs are now the exclusive investment vehicle used in SMI's Dynamic Asset Allocation Strategy (see below), as well as the primary way to implement our Just-the-Basics strategy.

Participate in your workplace retirement plan. If you have access to a 401(k), 403(b) or other type of workplace plan, you may be wondering whether to focus your investing there or use an IRA instead. We suggest you use both.[36] That goes for government workers as well, who may have access to an especially attractive workplace plan known as the Thrift Savings Plan.[37] If you're self-employed, look into the many retirement savings options available to you, some of which may enable you to save far more than with a more traditional workplace plan.[38]

Choose and execute an investment strategy. Many investors were scarred (and scared) by the recession of 2008 and have become more risk-averse as a result. If you are among them, familiarize yourself with the new investment strategy SMI introduced in 2013 — Dynamic Asset Allocation (DAA).[39] Extensive back-testing indicates it has delivered gains when the market is moving up, but more importantly, has protected against loss when the market is falling.[40] If you're trying to choose among SMI strategies, look at our strategies grid that compares them on multiple dimensions.[41]

Newer SMI readers will likely benefit from reading about the five stock-risk categories we use in our Fund Upgrading strategy.[42] Upgrading begins with a decision about how to best allocate your dollars between stock and bond investments.[43] Those broad asset classes are then further divided among five stock-risk categories[44] and four bond categories, each with an important role to play. However, you don't have to make an either/or choice between DAA and Fund Upgrading. Research indicates significant benefits can be gained by using both strategies as part of a well-diversified portfolio.[45] Allocating your portfolio between these two strategies can help manage risk.[46] To find out how these strategies can be implemented on your behalf by professional money managers, investigate the SMI funds, including the new SMI Dynamic Allocation Fund.[47]

Level 3: Broadening Your Portfolio

Understand the relationship between the overall economy and your investment portfolio. Everyday, new headlines emerge in the financial press, sometimes with one headline contradicting another from the same news source! Instead of being confused by this, learn to read the daily news with a wary eye, keeping a steady hand on the wheel of your portfolio. It's good to be informed, but commit to being extremely cautious when it comes to changing any part of your carefully considered long-term plan.[48]

Early in 2013, the dominant financial news story was about the so-called "fiscal cliff." It related to the convergence of two important deadlines — an increase in taxes and a decrease in federal spending, the combination of which left some analysts conjuring up images of the country falling into a fiscal abyss. While significant tax hikes did come to pass, especially on wealthy households,[49] the market started the year hot[50— and for the most part stayed that way, driven by the Federal Reserve's easy-money policy. Bond investors felt the effects of rising long-term interest rates during the second quarter,[51] while stocks kept rising.[52] As the year went on, the stock market paid no heed to the annual warnings about a summer slow-down.[53] Bond investors didn't have much to cheer about in 2013, but bond funds, especially those holding bonds with short maturities, still have an important role to play in your portfolio.[54] If you desire to include bonds in a way that leaves you unaffected by rising interest rates, consider owning individual bonds instead of bond funds.[55] A Fed-related concern you're likely to hear more about in 2014 is the prospect of rising inflation. That tends to bring out the gold bugs, who have had reason to keep mostly silent in 2013.[56]

Upgrade your workplace plan. If you're like many SMI members, you probably use our strategies in your IRA. But did you know you can also use them within your 401(k) or other workplace plan? In 2013 we introduced a newly redesigned Personal Portfolio Tracker,[57] which makes it easier than ever to do just that. With the Tracker, you can put Fund Upgrading to work even in a plan with limited investment choices.[58]

Upgrade your education plan. If you have college-bound children, you may be able to use SMI's strategies, including Fund Upgrading, when saving for college. This is particularly so if you have decided to use a Coverdell Education Savings Account to help save for college.[59] Coverdell ESAs offer the flexibility of virtually unlimited investment choices.

Dig beyond the headlines of appealing-sounding investments. We stress the importance of getting your asset allocation decision right. One type of mutual fund, the "target-date" fund, makes this easy by automatically providing what the fund company deems an appropriate allocation based on your investment time horizon, then automatically making the allocation more conservative as you get older. But it's important to understand the drawbacks of target-date funds, of which there are several.[60] By the same token, you may have heard of "socially responsible" or even "biblically responsible" investing. SRI and BRI funds strive to avoid investments in companies that may be involved in activities that some investors may find objectionable. As worthy as that goal is, you may be interested to know why SMI makes no special effort to focus on such funds in its strategies.[61] Another idea that finds its way into the financial press on occasion is holding non-traditional assets, such as gold or real estate, in an IRA. Find out why we think that is generally not a good idea.[62]

Level 4: Looking Toward Retirement

Create an income stream in retirement. Ideally, you'll have multiple streams of income during retirement. One stream will come from your investment portfolio as you carefully determine how to walk the line between limiting risk and keeping up with inflation.[63] An important factor is estimating how much of your nest egg you can withdraw annually for living expenses.[64] To have a large enough nest egg to provide for your later life needs, take a hands-off approach to your retirement funds until you, in fact, retire![65]

For most people, another important income stream for retirement is Social Security. Carefully consider when to begin receiving benefits and otherwise how to maximize those benefits.[66] Those considering a reverse mortgage are often surprised to see how little monthly income such an arrangement will provide.[67] Purchasing an annuity is another common way retirees can turn at least a portion of their nest egg into a stream of income.[68] You also could pair a relatively low-cost type of annuity known as an "advanced-life deferred annuity" with a "managed-payout" mutual fund, which acts somewhat like an immediate annuity but without some of a traditional annuity's drawbacks, such as high fees and lack of access to the invested principle.[69]

Determine whether you will continue working in your retirement.[70] A growing number of today's workers are planning to continue working past the traditional retirement age, at least part-time. But their plans may not work out as they expect. In many cases, health issues may prevent them from working. In other cases, paid work may prove difficult to find. So, while it may be wise to prepare emotionally to work later in life, it's best to prepare financially to retire at a more typical age. One other later-life work option is to consider starting your own business as a source of retirement income.[71]

Make end-of-life healthcare decisions in advance. This isn't a pleasant aspect of later-life planning, but it will prove to be a great gift to your loved ones. In addition to completing various forms related to end-of-life care, it's important to talk about your wishes with your family.[72]

In recognition of the fact that many SMI readers are nearing or are in retirement, and that all of our members need to sort through the many issues pertaining to retirement planning, we reworked our "Four Levels" in 2013 to allow us to write on retirement-related topics more frequently.[73]

Conclusion

The Bible says, "Where there is no vision, the people perish" (Proverbs 29:18). The gospel provides the ultimate vision for Christ followers: to live in a close, trusting, vibrant, and eternal relationship with Christ. Financially, God gives us a vision as well — an other-centered vision to use the resources he has entrusted to us to bring glory to Him, love well the people in our lives, and put our gifts and passions to work in making a meaningful difference.

Within the world of personal finance, investing is for many people the most challenging and confusing topic. It is the one where fear is most likely to take us off course. As you move into 2014, take encouragement from the verse that is central to our mission: "For God has not given us a spirit of fear, but of love, and of power, and of a sound mind" (2 Timothy 1:7). God has given you the ability to embrace your role as a wise steward through skillful investing, and we're here to help you.

May 2014 be a year of growing ever more faithful in pursuing the grand vision God has given you and living out His powerful purposes!