Should You Set Financial New Year's Resolutions?
As the calendar turns to a new year, the tradition of setting resolutions comes into focus. Financial New Year resolutions are often at the top of many people’s lists. But the question arises: Should you set financial resolutions? Or is there a more effective way to approach your finances?
The Problem with Financial New Year Resolutions
Resolutions, by their nature, tend to be broad and often lack specific action plans. Research has found that only 9% of those who set resolutions stick to them, with 43% falling off by the end of January. These stats make it imperative to question the notion of setting resolutions.
A common financial resolution like “save more money this year” is a great intention, but it lacks clarity and direction. So it's right for you to wonder - how do you stick to New Year money resolutions? Without a detailed plan and measurable goals, resolutions can quickly falter, leading to disappointment and a sense of failure.
Planning vs. Resolving
The main difference between a resolution and a plan lies in their execution. A plan is more than just a declaration of intent; it's a roadmap for how you'll achieve your goals. It involves specific, actionable steps, timelines, and measurable targets.
1. Specificity is Key
Instead of vaguely resolving to "spend less," identify specific areas where you can cut back. This might mean setting a monthly budget for dining out, entertainment, or shopping.
2. Set Measurable Goals
Quantifiable goals allow you to track progress. For example, rather than just aiming to “save more,” set a goal to save a certain amount each month or reach a specific savings target by year’s end.
3. Actionable Steps
A resolution becomes powerful when paired with actionable steps. If your goal is to reduce debt, outline a strategy, such as the debt snowball method where you pay off smaller debts first, gaining momentum as you go.
The Psychology Behind Effective Financial Planning
Behavioural economics teaches us that humans are more likely to achieve goals that are clearly defined and regularly monitored. This is where a well-structured financial plan outshines a simple resolution. It’s not just about setting intentions; it's about creating a habit and routine that guides daily decisions.
Building a Sustainable Financial Plan
So, if setting financial resolutions is a shaky foundation - where should you start? Below are a few steps to get the ball rolling for you!
Start with a Financial Audit: Review your income, expenses, debts, and savings. Understanding your current financial situation is crucial.
Identify Short-term and Long-term Goals: What do you want to achieve financially in the next year? In the next five years? This could range from building an emergency fund to saving for retirement.
Develop a Budget: Your budget is the cornerstone of your financial plan. It should be detailed, realistic, and flexible enough to adjust to changing circumstances.
Set Up Tracking Mechanisms: Regularly review your progress. Tools like budgeting apps or financial spreadsheets can be helpful.
While setting financial New Year's resolutions is a positive step, they are often just the starting point. The real power lies in developing a detailed, actionable financial plan. This approach turns hopeful resolutions into tangible results.
So this year, instead of just resolving to improve your finances, plan for it. The difference could be not just reaching your financial goals, but surpassing them.