Millions of Americans—more than half of us—make new year’s resolutions, but most of us end up watching those resolutions slip away as the year really gets going. For many of us, financial resolutions top the list.
After years of research and writing about personal finance, I’ve learned a number of tips for making those resolutions last long past January.
When it comes to finance, there are several different types of financial resolutions that I tend to see.
- There’s an oft-quoted statistic about how the average American doesn’t have $400 to cover a financial emergency, so top priority for many of us is to build a robust emergency fund. After all, you can think about other goals all you want, but if a setback like a broken car or a lost job could put you deeply into the hole, the first order of business is to help protect your family by building enough of a reserve that you wouldn’t be in trouble if something went awry.
- Specific goals. This could range from buying a car or a house to saving up for a long-awaited vacation.
- Debt payoff. So many Americans have credit card debt and student loans that this is an extremely popular resolution. Credit card debt can be especially pernicious, as it can rack up and spiral over time because of high interest rates. Student loan debt tends not to carry interest rates that are quite as high as credit card debt, but the sheer size of that debt burden can be overwhelming for many who have borrowed thousands and thousands of dollars.
- Long-term planning. Especially if you have a family, it is important to think about the longer-term future. What would your family do if you were no longer around? This can range from learning how to write a simple will to thinking about saving for retirement. The future can often feel very far away, and it’s a very human bias to favor the short-term over the long-term outlook, but it’s important to keep the end goal in sight, too.
Whatever your financial resolution in 2020, I’ve found some important ways to make it stick. I’ve learned these tricks through learning as much as I can about research and data on the psychology of money, and by talking to as many real people as possible.
Make Your Financial Resolutions Tangible
What’s more powerful: “My resolution is to save more money” or, “My resolution is to save $10 a week so I have an extra $520 at the end of the year”?
The first part of this is about attaching specific numbers to your goal. Say you’re saving up for a vacation. How much will that trip to Thailand actually cost? Take a look at your budget. How much can you set aside each week? Each month? Based on that savings rate, how long will it take you to hit your goal? Are you comfortable with that timeline?
This enables you to see the cost/benefit of your goals more clearly. If you want to hit your goals sooner, you’ll need to make more sacrifices in the short term. If you want more spending money in the here and now, then you’ll have to put off your goal for longer. Both can potentially be viable options—the important thing is to go in with your eyes open.
In addition to assigning numbers, the next part of the equation is to figure out how exactly you’re going to achieve your goal. Maybe you want to earn an extra few thousand dollars a year so you can dedicate that money to paying off your student loans. That’s great, but how are you going to make that money? Are you going to freelance on the side? Open an Etsy store?
Turn It Into an ‘If/Then’ Statement
In the past, I’ve written about “implementation intentions,” or if/then statements that help you actually get things done. For example, maybe you have a habit of peering in longingly to the Apple store every time you pass it on your daily commute, and this tends to lead to impulse spending.
You might set yourself an intention like: Whenever I find myself at this intersection, I’ll cross the street. Now, whenever you’re in the neighborhood, you’ll be on the wrong side of the street, making it harder to peer into the store and making you less likely to buy gadgets you don’t need.
The beauty of this method with a financial resolution is that it’s like conditioning (think Pavlov’s dogs) but you don’t have to constantly drill in the ideas or practice them. The situation itself serves as the trigger to make you do something (for example, landing on that intersection). So just state your if/then statement out loud, and the idea is that the rest should work itself out.
This works in part because it’s a very practical approach to changing behavior that doesn’t require you to constantly go through that should-I-or-shouldn’t-I dance, and removes willpower from the equation because the new action is just something you’ve been programmed to do. One of the keys, too, is to set a positive intention rather than a “don’t” intention. In our example, this would not be a good intention: Whenever I pass the Apple store, I will not go in. Even though it’s well-meaning, the statement itself reminds you of the Apple store and could make it harder to resist. Better that the trigger be the intersection itself, so you don’t have to think about your beloved tech gadgets and instead just calmly cross the street.
Keep Your Eye on the Big Picture with Financial Resolutions
It’s easy to miss the forest for the trees, but when you have a difficult goal, it’s important to remember why you’re doing this. If you’re saving for a home, you might post a photo of your dream board somewhere you’ll see it regularly—to remind you why you skipped that second cocktail at drinks the other night.
You’re making sacrifices now, but in the end it really does come down to that long-term perspective. If you can keep remembering why you’re working so hard in the first place, it’ll be much easier to keep it up over time.
Happy new year!