Financial Resolutions for the New Year: Smart Goal-Setting for Success
Only 4 percent of people who make New Year’s resolutions succeed in achieving them, according to a recent survey by Statistia. If your resolution for the coming year centers on saving money — whether you are increasing your retirement contribution, considering a life insurance policy, or even just spending less day to day — you’re going to want to beat those odds. The good news is there are ways to help maximize your chances of success.
Start by setting realistic retirement or other financial goals that you can track and measure. And recognize that those goals may differ every year. During the COVID-19 pandemic, for example, many reprioritized the importance of protecting themselves and their loved ones with adequate health, life, and disability income insurance. Others discovered that they were far less tolerant to market volatility than they previously imagined, prompting them to connect with their financial professional for guidance.
As such, increased insurance coverage and a reallocation of investment portfolio assets may feature prominently on the list of 2021 New Year’s resolutions.
Whatever your goal, it’s important to have a realistic picture of where you are financially and where you want to be so you can make a plan to get there, whether that means tweaking your investments or getting started on a simple budget.
And, if the notion of retirement planning and money management makes you cringe, remember that wealth comes in many forms and financial professionals are there to help.
Just like with anything else, the first step is to get started. People have this taboo when it comes to talking about money. But effective goal-setting requires an honest look at where your finances are so you can figure out how to get them to where you want them to be.
Set realistic financial goals
What does your ideal financial situation look like? For many people, being debt-free ranks high on the wish list, but a wish is not a goal. Huge resolutions like “become debt-free” sound grand, but it’s easy to fail if you don’t outline the how.
It helps to break it up into smaller chunks. Try setting smaller retirement or other economic goals that will eventually get you closer to being debt-free. For example, if you’re new to managing money, or you have a spotty track record, start with something simple, like building a budget or keeping track of where your money is going.
If you already have a budget in place, you may want to look at ways to rearrange it. Perhaps you’d like to pay off your mortgage faster by making extra payments or changing your payment schedule. If you’re one of the estimated 66 million Americans without an emergency fund, according to a Bankrate.com survey, you may resolve to get a savings account started.
Those who are more comfortable handling money and are willing to accept some level of risk in exchange for the potential to earn more money in the markets may want to learn more about investing, or get in touch with a financial professional to put together or revise their portfolio.
Keys to success: measurement, accountability … and dopamine
Breaking up goals into smaller, more manageable steps helps to make them more achievable. And it turns out your brain chemistry plays a part in helping you stay on track.
When you set a goal that you can measure in the short term, it’s easier to see the progress you’ve made. Feeling good about achieving a milestone kicks your brain into reward mode, which in turn creates an incentive to repeat the process.
If your goal is a long-term one, like having a certain amount saved for retirement, but money is tight, try participating in your employer’s retirement plan, if they offer one, or consider opening an individual retirement account (IRA) if they do not. Contribute what you can, as soon and as often as you can — the earlier you start, the more time compound interest has the potential to help grow your savings.
No matter what your financial goal, you may find more success if you tell someone about it — which may feel daunting, if you’re inclined to keep your wealth and financial information totally to yourself.
Talking openly with a trusted friend or professional about our goals (whether financial or otherwise) helps create accountability and keep us focused, which may in turn improve our odds of success.
In the case of spouses and life partners, it helps, too, to ensure that both parties are involved in the household finances and retirement planning, thus ensuring your plans don’t derail in the off-chance life throws you a curveball, according to Newey. “Two people should be taking turns keeping track of the finances,” she said. “One of the most devastating things is when there’s a loss of the person who was managing the purse. The survivor is in a fog and devastated and that’s when they get behind the curve.”
As such, it might be wise to declare your money resolution goals out loud, whether that means opening up to your family, talking to a friend, or connecting with a financial professional for guidance.
Online resources for financial resolutions
One of the most popular is Mint.com, which offers simple budget tracking for free with optional paid add-on services.
Every Dollar is a wonderful budgeting software option which, like Mint, works on both desktop and mobile devices. It’s designed to track spending, but also helps you keep some more specific goals in mind — things like building an emergency fund, paying off debts, and saving for the future.
Quicken is one of the oldest and most robust money-management programs out there, and while the use of its companion app requires manual syncing, it may be a good solution for those who are ready to move past the simpler budgeting tools.
Money goals: Embrace the journey
Remember that achieving goals is a process, not something that happens in one fell swoop — and life has this pesky habit of getting in the way. Try to build some wiggle room into your financial plan to allow for adaptations as needed. And, if you’ve ignored your finances enough that it makes you nervous to take that first step, remember that financial professionals are there to help.
Provided by Commonwealth Financial Group, courtesy of Massachusetts Mutual Life Insurance Company (MassMutual). ©2020 Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001 CRN202212-275258