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Financial Planning
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3 min read
It’s almost that time of year when we start making plans to toast to the new year. Inevitably, New Year’s resolutions are not far behind. As resolutions go, we start out with the best of intentions, but many are eventually broken (speaking for myself). Why do so many of us fail when it comes to New Year’s resolutions? It could be because they are bad resolutions to begin with!
For instance, when it comes to financial-related resolutions, the top three promises that tend to be pretty commonplace each year include paying off debt, saving more money, and spending less. Vague goals such as these lack benchmarks or milestones and are easy to ignore. Instead, this year, let’s resolve to set goals that are specific and measurable. Need some examples? Here are three New Year’s resolutions with an example of a bad and good way to help you be successful!
Bad Resolution #1: Pay off debt
Good Resolution #1: Pay off $200 of debt each month, or $2,400 over the year.
An ambiguous resolution to pay off debt won’t get you far. Instead, decide to pay off a specific amount of debt per month, or a specific amount of debt over the course of the year. The key to success is including a dollar amount and specific timeline. Shorter goals usually make for more successful stories; by human nature, we like to report and surpass goals—so making shorter goals will keep you motivated to the bigger end game.
It’s also important to be realistic. Examine your current financial situation and make sure it meshes with your goal. If you’re barely making ends meet, don’t resolve to pay off $10,000 in debt throughout the year. That’s not realistic or attainable. And, once again, if you don't see yourself making progress—even small progress—it's easy to throw in the proverbial towel.
Bad Resolution #2: Save more money
Good Resolution #2: Save $100 per month in my 401(k).
The words “I want to save more” mean a lot of different things to different people. Sticking $50 into a savings account by the end of the year would be considered meeting a goal. However, that may not be very productive or conducive to your long-term financial goals.
If your goal is to save money, set an objective for how much you’ll save—either monthly or over the course of the year—and designate where you’ll place those savings funds. If your goal is to increase your retirement savings, consider adding a certain percentage from each paycheck to your employer 401(k) plan or an individual retirement account (IRA). If your retirement savings are on track, consider investing in a college savings account for your children. Don’t have an emergency fund? Establish one by learning how much you need for an emergency fund and then start putting funds into a money-market or other savings account.
Related Reading: Emergency Fund 101
Bad Resolution #3: Spend less money
Good Resolution #3: Cut $50 per month off the grocery bill.
We can all agree that spending less money is an admirable goal, but it begs two questions: how much less should you be spending and where should you cut spending? More than likely, the “good” resolution example above gives you a better idea of how to meet your goal.
Before you resolve to spend less, review how much you spent in total the year before. Build out last year's budget to understand how you spent your money, find the areas where you overspent, and then think of specific ways to cut spending in those categories. For example, you may be able to save more just by pre-planning meals or shopping for produce when it’s in season.
No matter what you resolve to improve in the coming year, we wish you health and happiness in the coming year! For more personal financial management advice delivered directly to your inbox, subscribe to our blog!
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