For 2014, a record number of consumers — 54% — are considering making a financial New Year’s resolution, according to a study by Fidelity Investments. One reason could be that 26% of survey participants say they are in a stronger financial situation than they were a year ago, compared to 19% last year.
If you also plan to make a financial resolution, you may have learned from past New Years that it’s much easier to make a resolution than to achieve one. The same study found that about three in ten people fall off the bandwagon.
So what’s the key to succeeding? Having a well-crafted goal.
“It’s easier for us to stay motivated with goals that have certain elements to them,” says Dr. Will Meek, a psychologist in Vancouver, Washington. “If we shape a goal well, it’s something we’ll continue to pay attention to and that will help us stay motivated. If we don’t shape it well, we’ll lose track of it and lose our motivation, and it won’t come to be.”
Below are tips on creating strong goals in general and around the top three financial resolutions people make — as well as an extra one we think you should add.
How To Formulate Strong Resolutions
1. Be positive.
Goals should be positively worded, says Dr. Meek. For instance, instead of saying something like, “We’re going to spend less money on frivolous things,” say instead, “We’re going to spend money only on things we truly value.”
2. Focus ruthlessly.
It’s easy at the New Year to become over-ambitious and think you’ll overhaul your entire life. But if you try to do too many things at once, you’ll be spread too thin. If you really want to make some changes this year, focus on one to three things that really matter to you, so you can put in the time and effort to achieve them.
3. Be specific.
Dr. Meek says the key elements of a strong goal can be summarized with the acronym SMART, starting with Specific.
“We want the goal to be as specific as possible rather than general. It keeps our attention on point, so we don’t say, ‘I’m going to be healthier’ but instead, ‘I’m going to eat two portions of vegetables two days a week,’” says Dr. Meek.
4. Make your goal measurable.
Goals also need to be Measurable, he says. “If we can track our progress, it can help with our motivation,” he says. If you have a goal of paying off $2,000 in credit card debt, you can easily break it down into four $500 payments, and get a boost as you watch yourself get 25%, then 50%, then 75% of your way to your goal.
5. Keep your resolution attainable.
“If [a goal is] so out of reach, that’s demotivating,” he says. If you know your tendency is not to be realistic about what you can accomplish in a given period of time, start tracking your time or looking back at your past accomplishments and how long they took you to achieve to get a sense of what’s possible.
6. Choose a goal that’s relevant.
Dr. Meek also recommends making your goal Relevant — “this is something that matters to me.” If you make a goal because it’s something you think you should do, but you personally don’t care much about, you’re much less likely to accomplish it. Part of this is just about framing, he says. While you might personally be bored by the idea of saving more, if you connect it to giving your child the best college education you can, that will be much more motivating.
7. Make it time-bound.
Finally, your goals should also be Time-bound, so they have a deadline, as that pressure will help you ensure you reach your goal. So, for instance, your goal of paying of $2,000 in debt should have a deadline of, say, April, so you know exactly what date you are aiming for.
Once You’ve Made Your Resolutions …
1. Check in regularly.
Make sure you don’t lose sight of your goal. Create a prompt for yourself that will always remind you of it. For instance, decide that every time you pay the mortgage, you’ll revisit your financial resolutions. Make sure you are doing a check-in at least once a month, and during that time, appreciate what you’ve already achieved. If you’ve made it this far, you can reach your goal.
2. Remind yourself of your motivation.
Once you’ve got all your resolutions set, document all your goals and your reasons for committing to them.
3. Don’t give in to downward spirals.
Finally, if you get off course, don’t beat yourself up or dwell on your mistakes. It will only make yourself feel worse, and you’ll end up even further off track. “When you slip up, get right back on as soon as possible,” Dr. Meek says.
How To Create Strong Financial Resolutions
For the third straight year, the Fidelity survey found that the top three New Year financial resolutions are saving more (54%), paying off debt( 24%) and spending less (19%), with the debt resolution passing “spending less” for the second most popular slot. It’s also increased threefold since 2010, when only 8% of respondents intended to pay off debt.
1. Saving More
If you intend to put away more money this year — whether for a rainy day, a down payment, a dream trip, your child’s college education or something else — Mary Beth Stojohann, certified financial planner and CEO and founder of Workable Wealth, says, “Always automate your savings. It’s hard to do a transfer on your own.” For instance, she recommends you set up automatic 401(k) or Individual Retirement Account contributions or automate a regular transfer from checking to savings.
2. Paying Off Debt
First, stop contributing more to your debt. Also keep a little rainy day fund of at minimum $1,000 so an emergency expense doesn’t end up on your credit card.
Second, she says, don’t chip away at your debt by sending random payments toward each debt every month. Instead, send as much as you can toward your debt with the highest interest rate, and then pay the minimum on all your other balances. “That will save you the most money in the long run,” she says.
Finally, as with savings, automate those debt payments.
3. Spending Less
Set a threshold for your big purchases, suggests Storjohann. “It’s one thing to spend $20 at Target on a whim, but if you ever want to buy something $50 or $100 or more, give yourself at least a 24-hour waiting period to make sure you’re reflecting on the purchase,” she says. “Ask yourself what you’re giving up in lieu of this purchase. Is it going to be that you’re not going to go out for the next month? Where are you going to make up the difference? Because it’s money that hasn’t been accounted for.”
She recommends setting your threshold at $50 or $100, depending on your budget. During your waiting period, ask yourself why you want this item and what it means for you — whether you really need it or want it to keep up with the Joneses. If it’s more the latter, remind yourself, “When you’re comparing yourself to other people, you’re seeing their best self — not the financial issues behind-the-scenes that make you keep up with them,” she says.
4. Bonus Resolution: Earning More
When it comes to improving their finances, most people turn to “austerity” measures like paying off debt or spending less. But they often don’t consider making more money — and that resolution should be on a lot more lists, as it will make it easier for you to save more and pay off debt without having to spend so much time and energy on cutting back.
5. Get creative about ways to earn more. Start with your salary — check out websites like Payscale, Glassdoor and Salary.com to see what you could be earning for your position and experience in your city. Then, come up with a plan for wowing your boss, so you can make a strong case for a raise or some kind of increase in benefits — or, if you feel up for navigating what is a trickier dance, interview for other positions to get a counteroffer or even jump ship.
6. Finally, consider decluttering — and profiting from it. Sell gently loved valuables on sites like eBay or Craigslist, or take brand-name items to consignment shops.
http://www.forbes.com/sites/laurashin/2013/12/30/the-secret-to-making-financial-resolutions-youll-actually-keep/
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