Now’s the time of year when you start pledging to do better for the coming year — not only in your lifestyle choices, but also in your finances. That means you may be adding a financial resolution or two to your goals list.
But what can you do to help make sure you don’t fall into the one-third of Americans who drop their resolutions by next December? The answer may lie in how you’re setting up your resolutions. “Most new year’s resolutions are about accomplishing something big,” says Rob Berger, deputy editor of Forbes Money Advisor and author of “Retire Before Mom and Dad.” “And it’s the big ideas and great goals we have at the start of a new year that generally fail or get forgotten.”
Here are some ways to reframe the most common money resolutions with actionable steps and help make them work for you. With just a little tweaking, you'll be able to accomplish your financial resolutions — and more! — in the new year.
RESOLUTION: SPEND LESS
Why It’s Hard: People tend to cut as many discretionary expenses as possible when they are looking to trim their costs. "You’ll quickly find this level of austerity is not sustainable," says consumer savings and family budgeting expert Andrea Woroch.
How to Succeed: Start small by finding one or two easy behaviors to change until you make a new habit, then move on from there. “Determine what it means for you to spend less by analyzing your spending over the last several months,” Woroch advises. “Where can you cut back? What purchases or buying habits are you willing to give up?”
For example, if you typically dine out four times a week, try cutting it back to twice per week and put the amount you save toward your goal. Or if you find your weakness is weekly sale emails, delete some right away so you’re less tempted to spend. The idea is to make costs that were once a regular part of your spending feel less necessary over time.
RESOLUTION: SAVE MORE
Why It’s Hard: Saving more and spending less typically goes hand in hand — when you spend less, you have more to save. But if you’re not even sure what you’re saving for, it can leave you feeling directionless, Woroch says. Without a clear savings goal in mind, it can be difficult to stay on track.
How to Succeed: Focus on your specific priorities; that can provide the motivation for the tradeoffs you’re making to save. You may even be able to tie it into another resolution. For example, if you’re looking to travel more next year, then start a travel savings account and label it something aspirational, like “My European Road Trip” or “The Bora Bora Fund.” That makes it a lot more fun to see the account balance grow.
If you have a specific dollar amount attached to a savings goal, break it down to make it feel more manageable. “Let’s say you want to save $1,000 by the end of the year; that amounts to saving approximately $2.75 a day. So make it a priority to reach your goal of putting aside $2.75 each day,” Berger suggests. Soon, this simple action will become a daily habit.
RESOLUTION: STICK TO A BUDGET
Why It’s Hard: It can feel daunting to sit down and look at where your money goes. This can be doubly difficult if you aren’t already in the habit of checking your bank accounts or tracking your spending.
How to Succeed: If you’re not sure how to allocate your budget, a good rule of thumb is to divide your spending into three basic categories:
fixed costs are nonnegotiable expenses like your rent, cell phone bill and minimum debt payments that you have to pay
committed expenses are what you put toward your personal financial goals (stuff like debt paydown, retirement or your emergency fund)
discretionary spending is what you spend on whatever you want
Then schedule a time to sit down and figure out where your money is going. “Set up a calendar appointment for a few hours for the initial budgeting process sometime near the start of the year, then set aside a specific time each day you’ll track your purchases to make sure you're sticking to spending limits,” suggests Nathan Hamilton, director and industry analyst at consumer finance site The Ascent.
Think you could put more toward your committed expenses by cutting back on a discretionary expense? Make adjustments as necessary. The regular money dates you keep with yourself are there to help keep you accountable — or help you determine if the budget numbers you set aren’t realistic. “You’ll be able to tell if you’re succeeding at your resolution if you keep these appointments — and you can course correct right away if you don’t,” Hamilton adds.
RESOLUTION: PAY OFF DEBT
Why It’s Hard: When you’re dealing with debt, it’s easy to feel like you should resolve to shrink it ASAP. But that’s not reasonable, effective goal setting, Woroch says. It can cause your determination to fade when you should be chipping away at your balances for the long run.
How to Succeed: Break down how much you want to put toward debt each month to help you reach your debt paydown goal. For example, if you want to pay down your student loan debt by $5,000 this year, how much more would you have to put toward your monthly payment to make it happen? “Ensure it’s reasonable,” Woroch advises. “If it’s not, determine a more practical goal for the amount of money you can comfortably set aside.”
And don’t forget to bake in small rewards. Reach your debt payoff goal three months in a row? Treat yourself to dinner with friends to celebrate. “You may have to find room in your budget to accommodate this expense,” Woroch says, “but doing so will make your overall goal easier to achieve.”