Nearly 70% of Americans are making a money-related New Year’s resolutions and more than half of those making one are prioritizing saving more, according to Fidelity Investments’ 2020 New Year Financial Resolutions study.
As well-meaning as we may be, around half of us failed to keep the financial resolutions we made this year. Change doesn’t come about because people want change so badly. It comes about because they plan it.
Here’s how to make a plan so you can actually accomplish three of the most popular financial resolutions for 2020.
“Save more money”
This goal won’t work for many people, because it needs to be more clearly defined.
• Make the goal as specific as possible: “Save $3,000 over 12 months,” not just “save more money.”
• The goal needs to make sense and be attainable with your skills and abilities.
• The goal should be important to you.
• You need to set a time frame for accomplishing your goal.
• The progress of your goal has to be tractable
Pay down debt
One method is call the snow ball strategy. You make at least the minimum payments on each of your debts, credit card, student loans, etc. and then put any extra money you have toward the debt with the smallest balance, regardless of interest rate or other considerations, so that you pay it off more quickly and have one fewer bill to worry about.
This method has a psychological benefit: Paying off one debt will keep you motivated to then aggressively pay off your next-highest balance and so on.
I prefer the avalanche method, where you focus on paying off the debt with the highest interest rate first. Mathematically, this method is more financially beneficial than the snowball method, because you’ll save more on interest payments. But you might lose steam if you’re not seeing quick results.
This resolution is probably the hardest to actually achieve because it involves making a budget so that you know how much you typically spend each month in major categories: housing, food, transportation, clothing, entertainment, etc.
Changing your spending habits can be difficult because you are pressured to spend from many different social media platforms. Seeing your family and friends post pictures of their vacations, drinking at their favorite pub or dining out with a group of friends are difficult to ignore.
I believe that in order to succeed you need to reduce but not completely eliminate your spending on things you enjoy. Step one is to breakdown areas that you spend too much money on, then make up some spending rules.
- One common area of over spending may be going out for lunch every day. New Rule: Bring a lunch to work three days a week and only go out twice a week.
- Another common area of over spending maybe ordering takeout meals. New Rule: Assign every other Friday for ordering a takeout meal.
Another concrete tactic for spending less: Institute “no spend” rules for yourself. If there are certain things you spend too much money on like books, clothes or entertainment, then set strict rules for yourself for a manageable amount of time, say a month or season. (i.e. no new purchases of summer clothes)
It takes a lot of will power and discipline to be successful in keeping any of these three financial resolutions. However, paying down debt and spending less will automatically lead to saving more. To be really successful, you want to make sure your goals are attainable, but also that they make sense with the life you want to lead.