It’s not too late to set money resolutions for 2019
New Year’s Day has come and gone and perhaps your resolve to stick to your resolutions has disappeared by now as well. If so, don’t despair — it’s not too late to set and achieve some money goals.
WHY GOALS MATTER
It is important to use goals to help achieve big plans. For example, you may want to retire comfortably or own a house one day. But how do you do that? By setting smaller, achievable goals to get you down that path.
“It’s planning,” said Michael Eisenberg, CPA, financial planner and member of a financial literacy commission for the American institute of CPAs. “Setting goals is equal to planning. When you have a goal you can see it and take steps toward it.”
And when it comes to something as important and long-term as your financial security, goals are extremely important. Once you write down a specific goal it begins to become more real. And if you take action on it and see incremental success, it can often provide the positive feedback loop that helps keep people going.
“It’s interesting to watch human behavior,” Eisenberg said. “When (clients) start to set some money away and see it grow they start to (think) ‘wow’ and continue to do it.”
New Year’s has passed but a recent study from the Wharton School at the University of Pennsylvania found that other days that have importance to individuals can serve as fresh starts of sorts as well.
The study found that certain “landmark” days — such as a birthday, the start of a new week or beginning of a new school term — can jump start new habits. The exact day doesn’t matter as much as the fact it is embraced by an individual. That’s because when people buy into these landmarks, they interrupt the traditional decision-making process, helping people focus on their high-level goals rather than the mundane details of daily life.
Consider a stop for coffee in the morning. Where someone might normally decide if they are going to stop based on a desire for coffee or how long the line is, this thinking may shift if someone has embraced a bigger goal, said Wharton researcher Katherine Milkman. The thinking may shift to “Is this coffee helping my ultimate goal of saving money?”
Milkman, who specializes in behavior change and decision making, also notes that people should not beat themselves up if they have tried and failed before.
“Change is hard,” she said. “We have all tried these things before and we all need a kick in the butt to try again.”
HOW TO CRAFT A GOAL
It is important to pick a goal that really matters to you.
Once you have a goal, make sure it is achievable. So don’t say you will save $29,000 if you earn $30,000, Milkman said as an example. Try something more bite-sized like saving $2,000 and calculate what that might mean on a weekly basis. Then figure out what steps you need to take (take the bus, bring your lunch twice a week, etc.) to make that happen.
Lastly, write it down. Experts across the board agree this helps cement your goal.
HOW TO MAKE THEM STICK
Consider both the carrot and the stick.
On the carrot side, keep your bigger goal in mind when you make smaller decisions along the way. And maybe consider how your future self might feel if you achieve that goal. A 2014 study from researchers from a group of universities used age progression software to show people what they looked like at retirement age. Those who saw the older images of themselves were significantly more willing to save money for retirement than those who had not. You may also want to consider the stick: some people commit to a financial penalty if they fail to meet smaller goals along the way.
Some people make their goals public as the shame of admitting failure keeps them committed. “Anything you can do to make it painful to fail makes it incentive to succeed,” Milkman said.
Also, try making it easy on yourself. If you are committed to saving or paying off a debt, automate it so that money is moved without you even having to take further action.