New Year’s resolutions, plans, goals, declarations and intentions — I’ve tried them all.
What they have in common is that they work, right up to the point when they don’t. Which is why I long ago gave up on resolutions, feeling that a single misstep saps courage and wipes out willpower.
Instead, I began goal-setting — making annual targets that were achievable over the course of 12 months, even if I faltered and my path was not straight and consistent.
In 2015, however, I made things infinitely more simple, especially when it came to my financial resolve for the year ahead. It was a good time for a change, as I was going through a divorce; life changes make steady progress difficult and frustrating. The system I adopted then worked so well that I did it in 2016, and will again in 2017. You might want to try it for yourself.
Unlike years past when I would make long lists of targets or try to fulfill lots of little dreams, my new approach is streamlined. Yes, we all have many things to accomplish, but for the purposes of setting new resolve at the start of the year, a short list is fine.
Can robo advisers manage your money and emotions?
In investing, giving in to your emotions can cut your return by more than 1.5 percentage points a year. Should you leave the job to an emotionless robo adviser instead?
Here’s how I come up with three different financial targets/goals as my mission for the year ahead: one is numbers-driven and specific; another is vague but relatively easy to accomplish, and a third is all about answering the question “What if?”
The idea is to start the year with one goal you want to focus on most. Then add something you’d benefit from doing even if the numbers aren’t ideal or perfect. Finally, pursue a goal where a successful outcome is a bonus but failure wouldn’t be a big disappointment.
Many goals could fit one or more of these descriptions. For example, a specific net-worth or retirement-savings balance could be the concrete goal, as could saving a certain amount of cash to pay for a big-ticket item without relying on credit. Broad, generic goals could run from simply increasing savings to decreasing debt.
The project could be a novel approach to an existing situation, or an attempt to do something entirely new. My own specific goals have involved debt reduction (2015) and heightened retirement savings (2016).
I use debt as a tool, but hate owing money; in 2015, as I completed the divorce process, I looked at outstanding debts and came up with an aggressive plan and a target number. Having the specific plan — and I was committed to reducing debt while not cutting or liquidating other savings — allowed me to feel good about my progress.
This past year, the focus was on rebuilding retirement savings after the divorce, and I put a plan in place in January involving regular deposits and increased set-asides which ultimately led to meeting the savings goal without feeling financial pain.
Just as the specific goal flipped from debt to retirement savings, the vague goal went in the opposite direction. In 2015, the idea was simply to add two new mutual funds to my retirement portfolio, with those funds getting regular monthly set-asides. There was no specific target or dollar amount, just the aim to have taken those steps in the right direction before year-end.
In 2016, the focus was on reducing the remaining debt. Being vague about exactly how to do that allowed me to set my priorities straight. My primary goal was to hit the retirement-savings target in 2016; once that was secure, remaining monies would reduce the debt without adding the pressure of a specific bullseye. Thankfully, I achieved beyond both expectations this year.
That brings me to the project. In 2015, I tried to save a dollar every time I spent one, so that every time I paid for something with cash, I pocketed the change and set aside a dollar bill and put both in a jar.
The what-if proposition: What if I saved a dollar from every purchase? How long would it take before I could take a fabulous trip with my daughters?
This was my personal version of various “keep the change” savings apps and programs that round up purchase amounts. It was not a “spend to save” idea, because I was not trying to spend money in order to put a buck in the jar. That kind of fake savings effort gets people in trouble.
I finished 2015 having saved roughly a dollar per day, on average. But I never felt like I was running through cash too fast, so it was easy savings. Not quite as mindless as having a program round up a purchase amount and set it into an investment account, but close.
So in 2016, I wondered “What if I throw all singles I get in change into savings?” Under the system of 2015, if I spent $ 1.47 someplace and paid with a $ 10 bill, I would put $ 1.53 in the jar (the 53 cents in change, plus a dollar), with $ 7 left in my wallet. In 2016, all of the singles in my change went to the jar, so there would have been a fiver in my billfold and $ 3.53 in savings.
With a few days left in the year, this had generated about $ 500 in savings. More importantly, it never made me feel like I was burning through cash. That vacation fund is starting to look healthy too.
To make something more than just a wish or a hope, you have to work towards it; that’s true whether you are making resolutions, goals or plans. Give it a try. Set your targets and decide how you want to try to hit them. Having those targets should keep you motivated. And when it comes to your finances, remember that all progress is good. Even if you fall short of your goals and resolutions, you’re better off financially just for the attempt.