Thursday, 1 January 2015

How to Make a Financial Resolution That Will Last the Entire Year

By Trent Hamm

Focus on your behaviour, not your end goal.

Don't take on several financial goals at once. You will only set yourself up for failure.

Many people like to view the launch of a new calendar year as the start of something new. It’s a chance for rebirth. It’s a chance to change things about your life that make you unhappy.

For many people, that takes the form of a New Year’s resolution. It’s a promise to ourselves that something is going to be different in the new year.

A resolution comes from a sincere place that represents a true desire for change. The challenge comes from the execution.

Here are six strategies for building a lasting resolution, financial or otherwise, for the coming year.

Focus on one thing, not a bunch of things. It’s easy to identify a truckload of changes you want to make in your life, but if you try to take on a lot of changes at once, you’re going to fail. Your attention is split between a lot of goals; plus you’re changing a lot of routines all at once. That’s a recipe for failure.

Instead, pick one meaningful goal, and focus on achieving that goal in your life. The others can remain on a “someday” list.

For example, let’s say you’re facing a financial situation in which you’re dealing with high-interest credit card debt and no down payment for the house you dream of buying. On top of that, you’re not saving for retirement. Making all of those into a goal is a guarantee for failure. Choose just one financial hurdle, and make it your focus for the coming year.

Be realistic. You’re not going to suddenly go from someone who’s living paycheck-to-paycheck to someone who invests half of his or her paycheck. It’s just not a realistic shift. Similarly, you’re not going to pay off all your debts this year if your debts total an amount greater than your income.

Instead, focus on realistic goals. Pay off one of your debts without accumulating any additional debt. Start contributing to a retirement account. Start saving for a down payment with a goal of saving about 10 percent or 15 percent of your income this year.

Translate your goal into specific behaviour. How exactly are you going to make this resolution happen? What actions are you going to take to achieve your goal? You need to look for tangible, clear things you can do that will make your goal a reality.

Don’t make a big list of actions, either. Focus on one or two things you can actually do to make your situation better.

For example, if you are resolving to save for retirement, that should be your specific action. Vow to contribute 10 percent of your check to retirement. If you’re paying down debt, your specific behaviour might be to stop using your credit cards for purchases while also paying extra on your high-interest credit card bill.

Make that behaviour simple and repeatable. For the behaviour to have an impact, it needs to be simple – something you can easily do – and it needs to be repeatable – something you’ll do over and over until it becomes completely routine.

For example, if you have a retirement goal, that’s easy – sign up for automatic contributions to a retirement plan. That way, it’s as simple and repeatable as possible. If you’re choosing to stop using credit cards, cut them up or put them in an inaccessible place. That way, it’s easy to not use them.

Your goal should be to make your better behaviour as easy to incorporate into your life as possible.

Judge your success based on executing those behaviour, not the end result. It can be easy to see your savings goal as a failure after several months if your balance isn't too high. Similarly, it can be easy to see your debt repayment plan as a big flop if your balance isn't much lower after a few months.

Don’t worry about that. If you’re repeating a behaviour that will inevitably solve your problem, your focus should be on that behaviour, not the end result. If you’re paying down debt a little each month and not adding to the debt, then you will eventually see success.

Focus on the behaviour, not the goal, and you’ll get to your destination.

Be accountable to others. Whenever you take on a big financial goal, your success or failure will impact other people in your life. It will affect your spouse, your children and perhaps others such as your business partners or your parents.

Keep those other people in mind as you’re working toward change. When it feels difficult, reflect on how getting rid of this debt will help your marriage or how saving for a down payment will have a positive impact on your children when you buy that house. You are accountable to those people for your choices, so keep them in mind.

In the end, a good resolution is one you can keep. These steps will pave the way to a sustainable resolution that will bring about real positive change in your life, not just a pie-in-the-sky wish.

Quote for the day

“Painful errors teach you more than success does.” - Jeremy Grantham