And if this year threw your finances for a loop, a money-related New Year’s resolution might be on your list of ways to improve your life in 2021.
Nearly two-thirds of Americans are considering a financial resolution for the new year, according to Fidelity Investments’ Annual Resolutions Study. The most popular financial resolutions among people considering one? Save more money, pay down debt and spend less money.
But simply making a resolution doesn’t mean you’ll be able to keep it. Only about 40% of people who make resolutions are still on track to meet their goals by June. If you want to be in the group that succeeds, you should be prepared for unique challenges that can make it harder to achieve financial goals.
Here’s why it’s so hard to keep a New Year’s Resolution—and five ways to make a financial goal you can actually achieve.
1. Recognize That Financial Resolutions Can Be Tricky
Talking about money can be hard, which means you may not feel comfortable shouting your financial goals (or your challenges) from the rooftop. And that can make it harder to set and stick to a financial goal.
“Finance is an area of our lives far more difficult to address than many others,” says Cecile Lyons, a psychologist specializing in financial psychology. “There’s a lack of transparency, and a sense of shame that may go along with behavioral patterns a person has or doesn’t have.”
And because you may not feel completely comfortable talking about your finances with others, you might hesitate to tell people about your resolution, or enlist a friend to help keep you accountable as you progress. As much as you’d like to think that improving your finances depends on simple math, it’s much more complex than just the dollars and cents: It’s emotional.
“Most money behaviors are emotionally dictated,” Lyons says. “In a split second, our brains make a decision and rationalize it.”
If you’ve been struggling to make ends meet during the pandemic, the challenges of changing your financial habits may be compounded this year. According to Fidelity’s survey, 38% of people will spend 2021 in “survival mode,” focusing on getting by day-to-day instead of being able to look toward the future.
If you spent 2020 dealing with reduced income, employment instability, or health concerns, you may already be familiar with some version of survival mode. If you’re in a tough money situation, remember that you don’t have to set a resolution at all—regardless of how you approached previous new years. But you still feel drawn to setting a resolution for 2021, it’s even more important to make a goal that’s achievable.
2. Identify And Understand Your Motivation
We make resolutions at the top of the new year because it feels like a natural time for change, says Saundra Davis, financial coach and founder of Sage Financial Solutions. But “It’s January 1” isn’t a good enough reason to stick with your plans to make a financial change. Instead, you need to think beyond the change itself and think about what the action will do to benefit your life down the road.
Rather than saying, “I’ll make a budget in the new year,” for example, think about what having that budget will do for you. Maybe it will give you peace of mind that you can pay all your bills each month. Maybe it will allow you to see opportunities to save more.
This is the transtheoretical model of change, Davis explains: Once you decide you’re ready for a change, you’re not necessarily ready to change immediately—no matter how much you may want to flip a switch and improve your life.
“Once you can think about how you’ll benefit, you can unpack how to prepare for January 1,” Davis explains.
3. Aim For Small Improvements
If your resolution is too big, Lyons says it’ll be hard to see your progress. It’s good to decide you want to be more financially stable by the end of 2021, for instance, but that’s a broad goal that doesn’t break down what you need to do to achieve this. Nor does it signal what will be different, or how you will know you’ve accomplished anything.
“You need to self-examine so you can bring specificity to your resolution,” Lyons said.
Setting a SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) goal requires that you set parameters around the behavior you’re trying to change. Doing so may feel like pain at first, but it forces you to make a plan that you can actually stick to. Breaking bigger goals into smaller resolutions can help make your progress more attainable, and allow you to see results more quickly—even if that progress is small.
Lyons gives the example of someone who wants to reduce their spending. Instead of cutting yourself off cold turkey, you could decide to set a goal of reducing your spending by 10% in January. At the end of the month, you can do a little math and either repeat the experiment in February, or adjust your goal so it’s more reasonable (or more ambitious!) for the next month.
“You don’t want to nickel and dime yourself in such a way to feel deprived,” Lyons says. “If you set lower expectations that can build on one another, it increases your momentum.”
In other words, once you figure out how to spend 10% less per month, you can experiment with ways to reduce your spending by 15% or 20% each month. It may take longer to reach your ultimate goal, but your change will be more sustainable over the long term.
4. Ditch Your “All or Nothing” Mindset
Once the clock strikes midnight and you turn the calendar page, it feels like the pressure is on to succeed right away.
“We hope that inspiration will become motivation, and that motivation will become action,” Davis says. And then, we expect ourselves to perform that action perfectly every single time. “That’s a big part of the challenge, this notion of all or nothing. We’ve got to get it right or we’re a failure.”
Instead of tying your resolution to performing a task perfectly, Davis recommends thinking about the general path you want to take, instead of getting hung up on your day-to-day success rate.
Take again the example of someone who wants to reduce their spending. Say in January, you’re able to reduce your spending by 10%. But in February, you’re only able to reduce your spending by 7%. It may feel like you failed because you didn’t hit your goal number. But you’re actually still succeeding, even if it’s to a slightly smaller degree than you planned. Your path to success may not be a straight line, and that’s okay.
5. Anticipate Failure and Acknowledge Your Progress
If you truly mess up, Davis says to pick up right where you left off—don’t start over from scratch. Instead of getting upset at yourself, give yourself space to learn a lesson about yourself and your habits. Taking time to reflect on what got in the way of your success can help you determine ways to improve your efforts, Lyons agrees.
Check out another common New Year’s resolution: Cutting back on coffee shop visits. If you decide to give up drive-thru coffee each morning, but found yourself pulling up to that window four times last week, it’s time to rethink the reason you ended up there, Lyons says. Is it because your morning routine is too rushed to allow you to make coffee before you leave the house? Or is it because you’re convinced the only way you can kickstart your long, tiring day is to get that caffeine jolt from the pros?
“If we can begin to recognize how we sabotage our efforts to change, there’s a much greater likelihood that we can intervene and change up our patterns…to meet our needs in different ways,” Lyons said.
Figuring out the roadblock in front of your goal can help you determine a way around it, whether that means changing your route to work or or preparing for your morning the night before so you feel less rushed. And if your coffee-grabbing ritual in fact gets you through the work day, then maybe it’s time to set it aside and choose a different resolution that’s worth your focus. You may be able to work toward a goal that makes a bigger impact on your bottom line.