As the clock strikes midnight on December 31, many of us enthusiastically proclaim that, “this is the year that I’m going to get my finances in order!” We’re filled with optimism, determination and a fresh sense of purpose. Yet, come February those bold promises have started to lose momentum. Why do so many financial resolutions fail? How can we create sustainable resolutions that do truly last?
Why financial resolutions often fail
- Vague goals lead to vague results: One of the biggest reasons financial resolutions fail is because they’re too broad, like “I want to save more” or “I’ll stop spending on unnecessary things”. It’s like setting off on a road trip without a map – you’ll drive around aimlessly and likely get lost.
- The all-or-nothing mindset: Many people fall into the trap of setting overly ambitious goals that require drastic lifestyle changes. While enthusiasm is great, trying to completely overhaul your financial habits overnight can be overwhelming and hard to maintain, leading to burnout and the eventual abandonment of your goal.
- Lack of a clear plan: A goal without a plan is just a wish. If you don’t know how to achieve your financial resolutions, you’ll struggle to make progress. Often, people set a resolution to save money but don’t put together any detail on how they will do it. Without actionable steps, the goal becomes nothing more than an abstract idea.
- Underestimating emotional spending: Many people overlook the role their emotions play in their financial decision-making. Impulsive behaviour often derails the best-intentioned resolutions.
- Lack of accountability: It’s easier to stay committed to a financial goal when you have a support system or accountability mechanism in place. Without accountability, it can be too tempting to justify a spontaneous splurge or skip saving for a month.
How to make sustainable financial resolutions
The good news is that creating sustainable financial resolutions is entirely possible. The key is to be intentional, realistic, and prepared to adjust your plan along the way. Here’s how:
- Set SMART Goals When setting financial resolutions, make sure they’re Specific, Measurable, Achievable, Relevant and Time-bound (SMART). For instance, instead of saying, “I want to save more” try, “I will save $200 each month by setting up an automatic payment in my savings account”. This way, you know exactly what you’re working towards, how you’ll measure success and how to stay on track.
- Start small and build momentum Rather than aiming for dramatic changes, focus on small, manageable adjustments that build over time. For example, if you want to cut discretionary spending, start by identifying one or two areas where you can make a small reduction, like limiting takeaways to once a week. As you achieve success you will build confidence and be more likely to maintain the habit.
- Create a budget that reflects your values: One reason budgeting fails is that people view it as a restriction rather than a tool for freedom. A sustainable budget aligns with your personal values, meaning it’s designed around what truly matters to you. If you love travel, for example, make it a line item in your budget so that you don’t feel deprived. By prioritising what matters most, you’re more likely to stick to your budget long term.
- Automate your savings and investments Automation is one of the most effective tools for building sustainable financial habits. Set up automatic transfers from your daily transactional account to your savings or investment account. This ensures you are consistently saving without relying on willpower alone. Plus, out of sight and out of mind is very effective - when you don’t see the money, you’re less likely to miss it.
- Implement the wait-24-hours rule: Impulse spending is one of the biggest challenges to achieving financial resolutions. By implementing a simple rule of waiting 24 hours before making any non-essential purchase you give yourself time to think it over. Often the urge to buy will pass and you’ll save money without feeling like you’re missing out.
- Regularly review and adjust your goals: Financial resolutions are not set in stone. As life changes, so will your financial priorities and circumstances. Set aside time each month to review your progress and adjust your goals if needed. This keeps you engaged and helps prevent discouragement if your situation shifts.
- Get an accountability partner: Share your goals with someone you trust – a friend, family member or even a financial adviser. Having someone to check in with can help keep you on track and provide motivation when your resolve starts to waver.
- Focus on the why, not just the how: Understanding why you want to improve your finances can be a powerful motivator. Is it to feel more secure, retire earlier, travel the world or simply reduce stress? Keeping your why at the forefront of your mind can make your day-to-day sacrifices much easier.
Many New Year’s resolutions fall by the wayside but your financial goals don’t have to. The key is to set clear, realistic and meaningful objectives, backed by a solid plan and consistent effort. Remember, it’s not about perfection but about progress. Even small, incremental steps can lead to significant financial improvements over time.
So, as you look forward to the new year, be kind to yourself. Set resolutions that are ambitious and achievable. With a clear focus, a solid plan, and the right mindset, you can make this the year that you truly do better with your money
Lisa Dudson is an investor, entrepreneur and author of eight bestselling personal finance and property investment books. She has been a media commentator on financial issues for more than 20 years and is known for pragmatic, meaningful and easy-to-understand financial advice. She is a director and shareholder of Saturn Advice and National Capital and provides financial and property advice through her consulting business www.acumen.co.nz Lisa’s advice is of a general nature, and she is not responsible for any loss that readers may suffer from following it. She cannot correspond directly with readers or give financial advice.
