How to stick to
Well, the new year is finally here. January first has come and gone and you’re probably thinking about the resolutions you’ve made or plan to make within the first month of this year. If you’re a chronic “resolution-er” who makes lofty goals but can’t seem to get the momentum to put them into action past the spring, you may be wondering what the point is of making another set of resolutions you’ll never accomplish.
Or maybe you never make resolutions but find yourself feeling stuck in your financial journey and are thinking about how you can finally bring some change to your wallet this year. Whichever group you fall into, we can help.
Setting financially focused goals is incredibly important to your financial future. Without these goals, you may never be able to get that new house or car or go on that dream vacation you really wanted. By reading this blog, you can learn how to avoid some of the common mistakes people face when making financial resolutions each year, giving you clear, actionable goals that will leave you in a much better place by year-end. Let’s take a look at some of the most popular financial resolutions we’ve seen and how they can be improved.
Resolution # 1: I’m finally going to get my finances in order.
There’s nothing “wrong” with this resolution, it’s a very good idea to make sure you know where your money is going and how much is being set aside for bills vs. fun stuff. However, when you phrase your resolutions in such a general way, it’s hard to figure out how to put a plan into action that will be successful throughout the year.
So, how do you fix this resolution?
Try phrasing it like this: “I will create a spending plan with the tools I need to stay on budget and allow room to save for my future.”
This resolution is not only more specific, but it also gives you actionable items to work on throughout the next year. You can start by tracking your spending to see where your money goes each month, then develop a spending plan from there. This doesn’t mean you have to cut everything fun out of your life once you see where the money goes but instead allows you to reallocate that money towards things that better serve you, like a retirement plan or emergency fund.
The spending plan is the beginner’s step to getting your finances in order; however, you’ll also want to make sure you start planning to get your future finances in order in case something would happen to you. Once you start to feel settled in your spending plan, check your insurance coverage, like auto and homeowners, along with liability to make sure your assets are covered once they start to grow. While you’re doing that, take time to draft your estate planning documents, including your choice of health care directive, power of attorney, and designated guardian for your children. You’ll also want to make sure your beneficiaries are up to date on your retirement accounts and life insurance policies. All of this information doesn’t have to be figured out at once but breaking it down into smaller steps with deadlines for each across the next 1-5 years will help you put things into perspective and stay on track.
Resolution #2: I’m going to stop spending money altogether!
It’s pretty clear what’s wrong with this resolution: it’s just not possible. Unless you live completely off the grid, you will need to spend money occasionally, whether that’s for bills, food, technology, housing, healthcare, and more. If you’re trying to create a lifelong habit of spending less money, you also don’t want to cut yourself off from spending anything right away. You will find that you become easily frustrated and give up faster than if you make a plan and give yourself some grace when you mess up.
How can you fix this resolution?
It’s not a bad idea to want to spend less money. In fact, if you take a look at your average monthly expenses, you might find there are quite a few places you can cut back.
The best way to start this process is in small steps.
Create a spending plan or budget based on how you spend each month. You can make this as specific and detailed as you want, from a weekly budget up to a yearly budget.
The next step is to cut out those unnecessary expenses, like eating out most days of the week or signing up for hundreds of different streaming services. You can do these gradually to make it less intimidating. Once that’s taken care of, make sure all of your monthly bills are set to autopay wherever it’s available. If you have a lot of different services you use monthly, like your phone, try comparison shopping or ask if a less expensive plan is available with your current provider.
After that’s all been done, try looking inward at what small things you can do within your own home, like decluttering your house and selling the items you don’t need or cooking more at home.
Resolution #3: I’m going to get out of debt this year.
Now you might be thinking This is a great resolution! and you would be partly right. It’s a great idea to get out of debt as quickly as you can, however, this is another resolution that’s not very specific and will lead to disappointment down the road. It also might not be possible for you to get out of debt within a year simply because of the sheer amount of debt you have. Even the savviest budgeters can’t work their way out of staggering debt, but they will make a 3, 5, or 10+ year plan to get it taken care of. If you want to get out of debt, you have to be aware of where you stand and make a plan. You can’t start by paying here and there whenever you can and expect to get serious results.
Here’s how you make this resolution better.
Sit down and make a list of all the debt you have, along with interest rates, minimum payment information, and any other details that will help you towards the next step: a repayment plan.
Set your sights on your highest interest debt first and work your way down from there. Once you get one debt out of the way, you’ll be able to use that money for the next one and so on until all of your debt is eventually taken care of. It’s important to remember that getting out of debt is a process, it won’t happen immediately. You will probably fall off the wagon several times, but you haven’t failed if it’s not all taken care of within a year. Having a plan to pay off your debt over several years is better than no plan at all.
Resolution #4: I will shred all of my credit cards and close the accounts to cut down on spending.
You’ll notice this resolution is different from the others. It’s pretty specific, goal-driven, and easy to carry out. So, what’s wrong with this resolution? It’s not always best to cut up your credit cards. Just because you have a problem with spending in excess doesn’t mean closing your accounts will fix those problems.
How can you make this resolution work?
Try changing it to “I will evaluate all of my accounts to determine which are not adding any value and which ones are benefitting me.”
If you have many long-standing accounts with positive payment histories and great rewards, those are not the accounts you want to close. In fact, closing these accounts may negatively affect your credit score and create more financial struggles for you down the road if you’re trying to get a loan. If you want to use your credit cards less, determine which ones you will use more often, then take the rest out of your wallet and store somewhere that’s more difficult to get to so you’re less tempted to use them.
Resolution #5: I’m going to cook more/do more meal planning this year.
When looking at this resolution, you may be wondering what this has to do with financial resolutions at all. You would be partly right, this is more of a health-related resolution, however, making an intentional plan for when and how much food you are going to buy has great financial benefits. The average American household wastes about 30% of the food it buys. This translates to an average financial loss of $1, 866 per year per family ($240 billion nationwide). Those who plan their meals and stick to that goal are bound to waste less food AND less money every year.
How can you put this resolution to work in your home?
Start small by saying to yourself, “I will cook one meal a week at home.”
You’ll find it’s easier to stick to a resolution if you start slowly. Only having to plan one meal a week will keep you from stressing about the sheer number of meals to plan and then purchase ingredients for. You’ll be able to pick the day that works best for you and won’t get carried away buying tons of new ingredients that will eventually spoil after you were unable to stick to your weekly resolution. You’ll slowly learn what you like to cook and won’t waste money on things you don’t want or won’t use.
Resolution #6: I’m going to save more money this year.
This is one of the most complex financial resolutions as it requires you to take many steps before you start to see results. Stating that you are going to save more without deciding how much money will be saved or where it will be stored will not help you reach your goal of financial security. This resolution is too generic.
How can you fix it?
Sit down and look at the savings options available to you, whether that’s investment opportunities, savings accounts, and more.
There are so many different ways you can split and save your money. Everyone’s priorities will be a little different; however, you know you need to save money for two things no matter what: health and retirement. You’ll want to run a retirement calculator to see where you stand now and where you’ll have to aim to retire comfortably. You’ll also want to assess your health and think about what problems you may run into in the future so you’re prepared to pay medical bills if needed.
After you run the retirement calculator and assess your health, an easy way to start working on this resolution is to look into your employer’s retirement plan (if you haven’t already). If you already put money into a retirement plan, consider contributing more (this could be on a gradually increasing scale). Once you’ve done that and have money left over, you might want to consider contributing to a Roth IRA that will provide you with tax-free money in retirement.
If you’re looking to save more money for healthcare costs, consider contributing more to an HSA (if you’re eligible) since that money can be extremely valuable in retirement (read more about HSAs here). After your retirement and health savings are set up for contributions, you’ll want to look into your emergency funds. Life will always have emergencies and you want to be as prepared as possible. Check out these helpful tips on how to get started on yours.
Still Struggling to Follow Your Resolutions?
If you follow these tips when creating your resolutions, you’re on your way to more focused, successful goals this year. However, if you still find yourself struggling to find the best place to start or ways to stick with it, know that the Availa Bank team is always here to help. We’re just a phone call, email, or quick branch visit away from helping you with all your financial questions!