Whether you shop too much, save too little, or have massive amounts of debt to pay off, setting a financial New Year’s resolution is a healthy way to ring in the new year and better your life.
According to a WalletHub survey, 97 million people have decided to make a financial resolution for the new year, with the top two being saving more and repaying credit card debt. We wanted to delve into the psychology behind resolution-making and give you some inspiration for setting resolutions you can actually achieve.
Do New Year’s resolutions actually work?
Having financial freedom is a goal anyone can get behind, so creating financial resolutions for the new year is smart. If you can stick with them.
But can a vow made in January really change your habits by December? Psychology says the answer depends on whether you have a fixed or growth mindset, terms coined by Stanford psychologist Caroline Dweck in her research on human behavior.
Let’s break this down. Having a fixed mindset means that a person believes their personality and abilities are fixed traits that can’t change over time. Someone with a growth mindset believes those traits can change and sees failure as an opportunity to learn and improve.
Our level of self-efficacy, or belief in our own ability to achieve a goal, also plays a role. Research has found that people with a growth mindset in regard to their own self-control and a high level of self-efficacy are more successful in sticking with their New Year’s resolutions and permanently changing their behavior.
5 tips for creating financial (or any) New Year’s resolutions
Okay, so now we know winning at New Year’s resolutions boils down to our mindset about our own abilities. But not all resolutions are created equal. Some are more difficult to achieve than others, so it’s important to think about these things when you’re making your financial resolutions for the new year:
That resolution to become a millionaire by the end of the year is admirable, but is it really attainable? Breaking down your resolution into bite-sized chunks will make it way easier to accomplish.
Say you want to stop eating out and start cooking more. Start with a resolution to cut out restaurants just during the week. That lets you save money Monday through Friday, while still giving yourself some breathing room on Saturday and Sunday if those Olive Garden breadsticks become too tempting.
Have a plan.
WalletHub’s survey found that almost half of people planning to make resolutions in the new year expect to keep their resolution for just six months or less, with most citing laziness as the resolution-killing culprit.
Having set tasks helps you avoid resolutions that are too lofty (see previous tip) and gives you a realistic view of how to make what you want happen. The trick is to create your plan before the new year starts. If you wait until later, there’s a good chance that laziness will stop you before you even have a chance to get started.
Everything is easier with a friend. Creating resolutions with someone else means you’ll have someone to check in with and hold you accountable for your progress.
Add some extra motivation for both of you to accomplish your resolutions by making it a competition. Who can have the most in savings by the end of the year? Who can shop with a credit card the fewest times in a month? Competing for bragging rights is a good way to spice up your resolutions and have fun achieving them.
We all need encouragement to stay motivated. Keep your spirits up by celebrating the incremental wins you achieve all year long on the path to your full goal. For example, if your goal is to put $1,000 in an emergency fund over 12 months, commemorate each $83 monthly deposit by doing something you love that doesn’t cost money, like going for a hike or taking a bubble bath.
Never say never.
What is it about saying the word “never” that makes us want to immediately do what we said we’d never do? Do yourself a favor and avoid framing your resolution in absolutes.
For example, saying “I’m only going to drink coffee made at home” gives you no wiggle room for those days when you need an indulgent pick-me-up. Framing it as “I’m going to cut down my coffee expense by only getting it once a month” gives your resolution specificity and a plan to make it happen.
Financial resolutions that start your journey
As this list reminds us, making resolutions isn't about overhauling the familiar and the comfortable, but how to make small changes that improve our chances of success.
If your goal is to save more, start with a small percentage — just 1% more of your salary than you are currently saving. Take a look after one month and see if you can increase to 2% or even 5% and reevaluate monthly or semi-monthly to keep yourself accountable to the effort, rather than fix your eyes on a long-term goal.
Set reminders on your phone, or find an app that helps you stay on task. Perhaps you don't want to share your financial plans with others. Use your device to keep you honest. Even a dry erase marker on the mirror can be an easy reminder of your daily plans for yourself.
Consolidate what you have by organizing your accounts before you start making changes in multiple places. Whether reducing to one credit card (or combining all those 401k accounts from previous employers), simplifying and streamlining are important goals, too.
Set a single day each week as a "no-spend" day, and maybe by February or March you might be willing to go for two days a week. If you hit a drive-through regularly, make that your no-spend day and move that money into your savings account to make your small step count towards your bigger plans for your finances.
Set low-level goals to celebrate your successes. Check your savings balance at the end of each month and write yourself a note of positive encouragement when you see a change. Rather than celebrate a $1,000 saved, glory in whatever effort you made from week to week, because those regular, routine efforts are what's going to get you to be successful daily, rather than the year at a glance.
Need more money tips for the new year?
As always, keeping up with the Kasasa blog is a great way to find tips for bettering your financial health. There are also some great books on personal finance you can read and influencers you can follow to hear advice on everything from paying off student loan debt to creating a will.
Have a financial resolution you want to share? Post it on social media and tag @askforkasasa — we (and your followers) will help you follow through!