In January, it is customary to make New Year’s Resolutions. Unfortunately, the reality is most resolutions are not kept. In fact, according to this article, by January 8 (about the time you read this), roughly 25% of resolutions have already failed. By the time we reach year end, less than 10% have been fully kept. For example, we go to the gym for a few weeks; then we stop. Our plans to lose weight also often fall short. We may plan to spend more time with our kids, turn off our electronic devices more frequently, spend less time on social media, read more, or simply be more productive. When it comes to our finances, we often talk about spending less, saving more and/or reducing our debt load. These efforts, too, often end after a brief time.
Why We Fail
Why is it so hard to keep our resolutions? We tend to go about setting these goals in completely the wrong way. We set ourselves up for failure before we start. Our goals do not have a true endpoint. As a result, we revert to our previous state even if we do achieve our goal. Maybe our goal is to complete a 10K run. After we do it, we stop exercising altogether. Or after making a certain amount of money, we fall into debt shortly afterward. We might reach our goal weight but later spoil our progress by relaxing our eating habits for weeks or months after that.
Sometimes our failure is based on factors we cannot control. We might suffer an injury while trying to achieve a fitness goal. An unexpected expense, such as replacing a burst water heater, could sabotage a financial goal. Experiencing a family tragedy could make it harder to achieve a creative-output goal.
What can we do to improve our chances?
It is often better to focus on developing habits rather than setting goals. While goals and habits might seem somewhat similar, they are entirely different. Habits represent processes. While they often sit in the background, they power our lives. If we genuinely want to make lasting changes, we will likely be best served by identifying habits that are related to the goal we are trying to achieve.
What exactly do we mean by this? Here are some examples:
· If you want to lose weight, perhaps you can focus on exercising more. Instead of saying you want to lose 25 pounds, commit to going jogging at least three times a week. Jogging is a habit; losing 25 pounds is a goal. You do not want to make it too hard to follow the habit. Maybe you can go jogging every day, but if you set the target at a lower level, it is a little easier to make it a habit. You can increase the frequency over time.
· You might also want to spend more time with your family. Instead of saying you want to spend seven more hours a week with your family (goal), make sure you are home for dinner every night (habit).
Goals Vs. Habits
To accomplish our goals, we must find ways to remain motivated enough to accomplish them. If you can develop a practice, it becomes automatic. You almost do not even have to think about it. The habit becomes ingrained in your brain’s thought processes. Ultimately, that makes habits easier to establish. At the same time, it can still be hard to develop new habits, so it can help to start small and increase the frequency over time. This helps lay a foundation for success. As the pattern becomes ingrained, the degree of complexity or intensity can increase.
Does this mean we should not try and set goals? Not exactly. Goals still have value. But, be careful not to let the goal be the endpoint. Think of goals as a being a means to determine the habits we must establish to achieve success. Once we are on a journey supported by the appropriate habits, goals can limit the outcome.
Time to Discuss Finance-Related Resolutions
At this point, you might be thinking, “Am I reading a blog on a self-help website or one written by a financial services firm.” Now that we have laid the foundation let’s think about how this can tie back into our financial lives and suggest some resolutions we can keep.
Say you want to save more for retirement this year. If your employer offers a 401(k) plan, and you are not currently contributing, there is no time better than the present to get started; have an amount withdrawn from each paycheck. If you are contributing to your retirement plan, increase the amount withheld each paycheck.. When the money is deducted directly from your pay, it is harder to miss it. Sure, the amount deposited in your checking account each time will be a little less, but you will never have the money to spend, and before you know it, you can figure out a way to manage taking home a little less pay.
Some employers will also let you direct a portion of your pay to another account besides your checking account. If that is an option, you can arrange to have an amount deducted regularly from your pay and deposited into a savings account instead.
Here is another resolution you might want to think about. We used to get statements from our financial services providers on a regular basis. Now, most statements are delivered electronically. Many service providers charge for paper statements.
During the time that I was between colleges and living in Tucson, I worked for the Public Fiduciary’s office. One of our roles was to serve as personal representative when people died if no family member was positioned to do so. The statements that arrived in the mail helped us discover what accounts a person had. In many cases, it was a lot easier to find those accounts back then than it would be today.
For example, what happens if all of your statements are delivered electronically and you die or become mentally incapacitated? While this may not be fun to think about, ignoring the possibility could have serious consequences. If you do not maintain a record of your accounts and passwords (and make sure those close to you know where to find that information), it will be much harder for your family to know about or access your accounts. They could be forced to spend months researching what accounts were held and might have to resort to legal means to access the accounts without having any password access.
Ultimately, setting financial goals is as much about having good financial habits – like proper use of credit card debt, living with a modest home and car, and spending less than you earn – as it is doing the math needed to determine what monthly amount you must save so that you can retire in 10, 20, 30, or more years from now. It is hard to be motivated by immediate savings for far distant goals, particularly when the path to achieve those goals is filled with so much uncertainty, that you cannot accurately determine what is needed to get there. It is much easier to feel rewarded for engaging in good habits that support your long-term success and better position you to deal with a journey that may take many unexpected twists and turns.
If you would like help creating healthy financial habits, please contact us. We would be happy to work with you.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.