So, did you hop on that new Peloton this morning or have you already broken the streak? Which diet are you planning on starting next week … or maybe the week after? Has your December credit card statement come in the mail and perhaps inspired you to make money-related goals in 2020? New Year’s resolutions are nothing new – neither is breaking them.
The average resolution has a shelf-life of about a month, and finance usually comes in third or fourth on the list of the most popular. About 20% of resolutions make it further.
This January, is it time for a new set of resolutions? What do we call doing the same thing again and again, hoping for different results? Hint: not sanity.
What’s the driving motivation behind NOT keeping financial resolutions, New Year’s or otherwise? Let’s investigate and see how we can set personal financial goals for the New Year that we actually stick to.
Check Your Baggage
Last year, you made that resolution to not overspend on vacations. You found yourself at Cabo in April, then the tour of Florence in July, then off to see Hamilton (on Broadway, of course) in October, and then – oh yeah – one impulse trip to the beach before it got too cold. What happened?
If this happens over and over, is it just a bad habit, or is there something deeper driving it? Look back: What are your memories associated with travel? Maybe it was the one time you saw your parents get along. Maybe you never took vacations as a kid and watched all your classmates go on fun family trips. Compulsively spending in this area becomes an unhealthy way to fix a past that’s already over.
Bradley Klountz, financial psychologist, calls this kind of financial baggage a “money script.” He writes: “Money scripts are typically unconscious, developed in childhood, passed down from generation to generation within families and cultures, contextually bound, and often only partial truths.”
Do the financial resolutions we routinely break speak to our psyche? Can we take a different approach in the future that will fit in better with our natural inclinations?
A Few Concrete Examples
Let’s look at a few of the most popular financial resolutions, some reasons behind why they’re broken and some revised versions that might work better.
Pay Down Your Credit Cards
Ah, here’s a classic. With the collective American credit card bill sitting at over a trillion, a good many of us resolve to use less plastic. But think about where that kind of spending often comes from – it’s impulsive, lavish and not based on a thoughtful financial plan. Perhaps the baggage behind this impulse reflect your childhood, growing up poor or under a controlling parent that constantly worried about money.
Maybe translate that resolution into “ spend X” on the card, or allot yourself a certain amount to spend as freely as you like and stay within that guideline. Goals that are specific and positive – i.e. “do this” rather than “do NOT do this” – may fit into your psychological makeup better and therefore may be more achievable.
Make a Budget and Stick to It!
Most of us can find scratch paper to write out a budget – we can use the back of the sheet we used for last year’s budget that we didn’t keep! Making a budget is a healthy financial move, but if you’re never able to keep to the details of it, look at those details again.
Look at your discretionary spending; where are the major leaks? Your entertainment budget goes over, because you’re proving to your kids that you’re not your parents – let’s go to the movies! Your dining budget goes over, because you’re proving to the dishwasher in the back that you are not them anymore!
Don’t look over just how much you spent in a year-end statement, but where you spent, and, under that, why. The pattern probably comes from somewhere deeper than “bad habits.”
One blogger opined on this well: “It’s no wonder that this is the most popular resolution on the list — it’s not actionable.” The resolution to “save more” is as vague as it is unmotivating: save more? How much? Pay down debt or put down cash on a big purchase?
Your parents taught you to save – that’s great. But if the voice in your head instructing you is preachy and moralistic, you won’t listen.
Or maybe you learned from family members who were irresponsible and lavish with spending. In that case, are you saving compulsively, trying to assert control? You may also be keeping money from important investments, or be so risk-averse that your money isn’t growing.
Give yourself a positive goal – use “do” language, leave out the “do nots.” Something like: By mid-year, I will have one more percentage point put into my IRA than I contributed last year. Or, By the end of the year, I will fund 529 Plans for both of my kids.
The trick here is that negative goals are emotionally unattractive and therefore more difficult to keep. It’s psychologically more realistic to run toward something positive.
Know Yourself for a Great Year
Knowing yourself a little better can help you set goals that are challenging, yet achievable.
Set a personal financial goal for the New Year to meet with your financial advisor and put together a plan that’s informed and growth-oriented, not impossible and frustrating. You’ll be surprised at how healthy and strong your finances can be in 2020.