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Benjamin Feldman

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Why You Should Make One Financial Resolution in the New Year

Posted: 12/13/2013 9:20 pm

These days, New Year's resolutions are often scorned by those who are "too cool" for such old-fashioned ideas. But the power of making a New Year's resolution has not waned. In fact, in today's world of ever-present media and constant streams of information, a New Year's resolution is one of the most effective ways to cut through the noise and start a meaningful change in your life.

What is at the root of all New Year's resolutions? A behavior change. When we make a New Year's resolution, we are saying explicitly that we'd like to change something about how we conduct our lives. It could be a financial, health, or interpersonal behavior, but at the core it's always about shifting from one behavior to another.

With finances, as we all know, this can be extremely hard. That's partly because financial decisions often involve accepting short-term pain in the name of long-term gains. Long-term thinking, however, is not something we humans are naturally inclined to do. We're more programmed to indulge our immediate desires and worry about the consequences later.

The biggest stores and retail chains know this is true, and they take advantage of this human quirk by tempting us in ways subtle and not so subtle: the ubiquitous "Limited Time Only" sales, two-for-the-price-of-one discounts, and the clever placement of sweets and treats right at eye level in the checkout aisle are prime examples.

Making Your One New Year's Resolution

With all this in mind, it's clear why a New Year's resolution can be so helpful. It's a fantastic way to use the quirks of your brain to your own advantage. Focusing on one specific goal has been shown to yield positive results because it gives you clarity of purpose and also gives you plenty of motivation.

Having one resolution, and only one, is a good way to bring all your efforts to bear on the most important goal.

But why make it a financial resolution? For one thing, finances are often the hardest area of life for people to make behavior changes in, and it's also an area that has some of the most serious potential consequences if you don't succeed.

Here are a few of the most common financial goals that can be ripe for making a good New Year's resolution:

-- "I want to reduce my monthly spending."
-- "I want to pay off my debt."
-- "I want to build an emergency fund."
-- "I want to save for a down payment on a house."
-- "I want to have enough money for retirement."

To turn these goals into effective resolutions, you need to make them a little more specific. It's worth taking a bit of time to look at your financial picture right now and then write down the exact wording of what you want your New Year's resolution to help you accomplish. Here are examples of what that might look like:

-- "I will spend less than $2,000 each month."
-- "I will pay off $350 of my debt every month."
-- "I will save $500 for my down payment every month."
-- "I will put away $100 for retirement every month."

Notice that these are written in a way that emphasizes a monthly goal. Whatever your resolution is, if you phrase it in terms of a monthly goal, then you'll give yourself monthly accountability as you go through the entire year.

It doesn't hurt to have a yearly goal, such as "I want to be debt free in 2014," but you should still break it down into a monthly goal so you can check in each month and know how you're doing.

Following Through on Your Financial Resolution

Once you've made your New Year's resolution, it can sometimes feel daunting to look ahead to the whole year (or even the first month), and you may feel uncertain about how to proceed. You might even want to quit within the first two weeks!

To avoid this initial pressure, brainstorm some key actions you will take right away to get some momentum going. For example, if your goal is to spend less than $2,000 per month, start reading up on meal planning and make a list of some go-to meals you can prepare easily instead of going out to eat. Look at all your monthly bills (like cable TV, cell phone, magazine subscriptions, etc.) and see which ones can be negotiated lower or eliminated altogether. If your resolution is to pay off debt, call up your credit card company and ask for a lower interest rate.

By taking these actions at the start of the year (or even before January 1st) you can kickstart your New Year's resolution so you'll feel a whole lot of momentum right at the beginning. That will carry you through the first month, which can be the hardest month anyway. The bottom line is, if you have a financial goal, you need to make a New Year's resolution. Your wallet and your future self will thank you.

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