New Year & New Year's Celebration

How to Stick to Your Financial New Year’s Resolution

It’s that time of year again when we promise ourselves that next year will be better, healthier, and more productive than the last. Financial goals, like getting out of debt, saving for retirement, or buying a home, are popular resolutions.

Sadly, we mostly fail.

Some estimates put our New Year resolution fail-rate at 80%. But it doesn’t have to be that way. Here are some tips that will help you stick to your financial New Year resolutions.

Track your spending

Before you set any financial goals, start by committing to sticking to a budget and tracking your spending and income every month. Remember, if you can’t measure or quantify your goal, you probably won’t achieve it either. The first step is to calculate your monthly expenses. Look at last year’s expenses. Your bank’s annual report or your credit card’s year-end summary are great tools for getting a feel of your spending habits.

Note the whys and whens

Take a look at which months had the highest spending and the reasons behind that. Was there a family reunion you had to fly out for? Did you or someone in your family become ill? Or did you splurge on shoes one boring summer weekend? You will probably be surprised by what you learn. Look for patterns or spending triggers. It will help you make better budgeting decisions.

Set S.M.A.R.T goals

You’ve heard it before, but it’s worth remembering. Set goals that are specific, measurable, achievable, relevant, and time-bound. Tackle your financial resolution like a project manager would. In 1981, George Doran published a paper called “There’s a S.M.A.R.T way to write management goals and objectives,” and it has become a classic in the literature. If you haven’t read it, I recommend you do.

What are you passionate about? What do you want to achieve? Maybe you are hoping to earn a degree, buy a home, repay your auto loan, or start saving for retirement. Whatever it is, break down into specific and realistic goals you can measure, and give yourself a deadline to achieve them.

Set one BIG goal

Even if you have several financial goals on your mind, take your most significant, most formidable sounding resolution, and break it down. Whether it’s saving up for your child’s college or cutting down your energy bill for the year, deciding on just ONE significant achievement will help you focus on actually getting it done. Once you’ve decided on your big goal, take one step toward it per month, or even one step per week if you can. 

Start with small wins

Don’t underestimate the psychological power of small wins. Most people fail to meet their financial goals because they don’t start with specific and realistic goals. Whatever your goal is, break it down into small manageable chunks you can quickly achieve. Every win will give you the feel-good shot of dopamine you need to reach your next goal.

Let’s say your goal is to cut your expenses by 30%. You can start by skipping Starbucks once a week or having family game nights instead of going out all the time. By starting with small goals, you will be more likely to stick to your long-term objectives.

Automate your path to success

The best way to stick to your financial goals is to set up a plan and forget about it. The fewer things you have to do or remember, the better.

For example, if your goal is to save 20% of your income, set up automated transfers for every payroll period. If possible, set up the automated transfers as part of your employer’s direct deposit. This will make it harder to turn them off (added friction).

Alternatively, you can set up recurring transfers that are timed to your payroll directly in your online banking system. If 20% is too ambitious at the beginning, start with 5% or 10% and revisit every three months.

Remember, any amount is better than nothing. Even just $20 per week may be the easy win you need to get your financial goal rolling.

Build an emergency fund

Whatever your financial goal is, you need an emergency fund. As we all know, life is unpredictable, so at the risk of sounding like a TV commercial for insurance, set aside a chunk of money only to be used for that seriously rainy day. Or put away a bit of money once a week if that’s more feasible–10 dollars set aside in a piggy bank each week equals over $500! But decide on an amount that you will be saving each week and stick to it.

You can have your bank do a weekly automatic transfer from your checking account to your savings account; no piggy bank required. It is a lot easier to save money when it’s done automatically.

Some banks even have programs like “Keep the Change” that will round up the price of each debit card purchase and transfer that difference (the spare change) directly into your savings account–a few cents a day goes a long way!

Reevaluate your goals regularly

Check your progress every three or six months. Think about your financial goals as moving targets. If you are not on target to meet your goal, find ways to tweak your budget to make it work. If that’s impossible, make adjustments, so the goal is attainable. However, if you are meeting your financial resolution without breaking a sweat, be ambitious. Set new goals that push you out of your comfort zone.

This year, take the time to focus on making a financial resolution that you can maintain for the whole year—and many more to come.