It’s that time of year again. Christmas is past and New Year’s is upon us. With the New Year comes the avalanche of New Year’s resolutions. We claim that this will be the year we lose weight, get our finances in order, and find the path to happiness. We start out all gung-ho in January but have fallen off the wagon by February. When our lives are exactly the same at the end of the year, we look back with regret. Then we start the cycle over the next New Year. Why? Because most of our resolutions are half-baked ideas that we aren’t prepared to tackle in any sort of realistic fashion. We go off on a lunatic quest to lose three hundred pounds in two weeks or to save $1,000 in a week and when we (inevitably) fail, we get mad. If you want to succeed, your resolutions need to be specific and realistic, and you need to prepare to do the necessary work. Here’s what I’m talking about:
Make the resolution specific: “Lose weight,” “Save money,” and “Be happy” are all fine ideas but they are just that: Ideas. In order to make an idea into a resolution you can tackle, you need to make it as specific as you can. “Lose thirty pounds in six months,” or “Save $1,000 in four months,” or “Find a hobby that makes me happy by June” are much better examples of resolutions that you can achieve. When you get specific you can better track your progress and set intermediate goals. If you want to save $1,000 in four months, you know that that works out to $250 every month. From there you can break it down to saving $62.50 per week. When you’re dealing with a number like that, it’s easier to plug into your budget and see that, for example, cutting out two dinners out per week and a trip to the movies will get you that $62.50. Isn’t that something you can more easily aim for than, “Save money?”
Make the resolution realistic: While you’re being specific, you also need to be realistic. You aren’t going to be able to save $1,000 in a week unless you win the lottery, get an inheritance, or a big tax refund. So saying, “I’m going to save $1,000 in a week,” while specific, isn’t realistic. You need to look at your budget (or your realistic tolerance for exercise and healthy food if you want to lose weight) and set a goal you can realistically achieve. If you aren’t realistic, all the specific numbers in the world won’t help you.
Prepare ahead of time: You need to be prepared to tackle your resolution, or factor preparation time into your realistic timeline. Most resolutions have a learning curve or require some extra scouting on your part before you can really dive in. If you want to start investing but have no clue about what to do or what institution to use, you need to learn a few things. So if your resolution is, “To invest $5,000 in an IRA this year,” you need to keep in mind that you
may not be able to start investing on January first unless you’ve done some prep work ahead of time. You need to learn a little about investing and pick a good investment firm, first. Similarly, if you want to lose weight but don’t know about nutrition or exercise, you’re going to have to learn a few things before the pounds really fall off. You either need to prepare ahead of time or be more lenient in your timeline while you get up to speed. If you don’t factor in the prep work time, you’re going to be angry on February first (and want to quit) when you haven’t even invested one cent or lost a pound.
If you’re looking for some specific financial resolutions, here are a few examples for you. Just tweak the numbers and timelines to your own specific needs.
1. Save $1,000 in four months.
2. Read one finance related book per month.
3. Learn the basics of mutual funds in three months.
4. Pay off one credit card within six months.
5. Have accounting at work direct deposit $50 into a savings account every pay period.
6. Balance your checkbook every month.
7. Cut your grocery bill by 20% in four months by learning how to use coupons and sales to your advantage.
8. Increase your income from a side business by $1,000 by the end of the year.
9. Track every cent you spend for two months so you can see where the excess money is going.
10. Get a will for yourself and your spouse by May.
Personally I don’t make New Year’s resolutions any more. I tend to get to work immediately if I find something in my life I want to change, even if it occurs to me in the middle of June. However, if you are a New Year’s warrior and have some resolutions you want to achieve this year, you can increase your chances for success if you make your resolutions very specific and realistic, and you do the necessary prep work ahead of time. Good luck!