Financial Dreams Come True with New Year’s Resolutions That Stick

January 02, 2012

After the Fourth of July and Christmas, New Year’s Eve is my favorite holiday. The Fourth of July because I am a Navy brat and grew up in a very patriotic family (we’ve always celebrated our country’s Independence Day), Christmas, well, that one is kind of obvious, and New Year’s Eve for the clean slate it brings to start a brand new year. Many people don’t like to make resolutions, but I do since I am a student of behavior change. How people can break out of their mold and start good habits while letting go of bad ones has always fascinated me. New Year’s Day, or at least January 2nd, is a great time make changes in your personal finances.

The first question to answer is “what changes do you need to make?” and that depends on you. My suggestion is to pick one thing that will make the biggest difference in your finances. From what I have seen over the past 25 years as a financial planner, I would say living below your means is essential to wealth creation because it frees up money for everything else — to pay off debts, invest for goals and retirement, and keeps your overhead low. If you are having trouble making ends meet and wonder where your money goes, pick that one.

Whatever your goal is, there are three essential components to meeting it – having a plan, engaging your inner child, and sticking with it (or maintenance). Let’s break each of these down considering our (sample) goal of getting a handle on our cash flow, but obviously this will work for any goal.

Having A Plan – Having a plan in writing makes a difference. A study of Harvard MBAs done in 1979, showed that only 3% of graduates had written goals. When they followed this class and interviewed them 10 years later, it was found that the 3% who had the written goals made 10 times as much as all the 97% combined. (From:What They Don’t Teach You at Harvard Business School by Mark McCormick.) Something about writing the goal down makes all the difference in the world, it could be that putting it on paper crystallizes the goal, or maybe it “sets” it better in the human brain. Either way, put your goal in writing and make it a SMART goal – Specific, Measurable, Achievable, Realistic and Trackable. Here is a resource for setting SMART financial goals – my caveat is for New Years, pick one important one to really focus on and then tackle the next one.

Engage Your Inner Child – Forget the “Should.” Think about it – do you really think that deprivation will work? It seems like the minute you set a goal such as quitting smoking, all you can think about is having a cigarette! Putting yourself on a budget? All you think about is what you can’t buy. Behavior change expert Martha Beck, in her book The 4 Day Win, suggests setting a goal for four days, (who can’t do something for four days?) and then giving yourself a reward tied to the action that you took. Rewards tied to actions are vital and she suggests making an excessive reward. Maybe your goal is to set up a tracking system for working with your money – each day you are going to take an hour and a half to review different cash flow tracking systems, such an Expense Tracker and reviewing your past few months expenses to see where your money went, signing up for and experimenting with an online tracker such as Mint.com or Quicken.com, and setting up some spending targets using a Spending Plan. Martha suggests giving yourself a big reward after the four days. Your reward has to be a special treat that means a great deal to you (and your inner child), and of course isn’t a big expense. For me, I am getting back into skiing and already bought a series of local’s passes so I could ski for a day! That’s a big reward. But I tell you, the inner child will jump for joy rather than resisting your changes when they are rewarded. Besides, it is fun!

Sticking With It – Maintenance. Anyone can do anything for four days but what happens on the fifth day, and the day after that? How can we make our changes stick to make a significant difference in our lives? There are many complex answers to this question, but I think trying not to bite off more than you can chew, keeping it fun, and making it a habit are probably the most important. Start with small reachable goals and build on them – similar to an athlete training for a race. Rome wasn’t built in a day, but brick by brick. Engage that inner child as you set new goals – whether it is for four days at a time or a week. Then reward yourself for the actions taken.

I recommend a weekly “money meeting” for everyone! Pick a time each week – say Wednesday nights—to review your spending targets and see where you are. This is a time to review investments or read about money – whatever helps you to meet your goals. If you do it once a week, it becomes a habit, and when you are watching your money each week, it really helps to keep it top of mind the rest of the week. When you engage the inner child with a reward after the meeting – chocolate comes to mind for me – you look forward to it rather than dreading it or procrastinating. The weekly money meeting is probably the missing link for many people – once you write down the plan and start with it, the most difficult part (and most boring) is probably maintaining it. But it is the most valuable because anyone can make a resolution, but not everyone can stick to it.

Think about what things you enjoy that would be good rewards for you that are either free or inexpensive! Years ago when I started in financial planning before I was a full time financial educator, I needed clients! I didn’t like to prospect but needed to connect with people who might need my services because sitting around waiting for people to come into my office wasn’t working. So I decided to set a “people connection” goal – I set a specific measureable goal of how many people I would connect with every week (by phone or going to an event, etc), then if I made the goal, I walked across the street to Tower Records and bought myself a music CD. I found this worked very well since my inner child wanted that CD and thought about what music she wanted to get all week. This pull helped me to reach out in my community and meet more people, making me more successful (and able to purchase the CDs!). Today I don’t work with individual clients and don’t need to prospect, but I learned a lot from this lesson and have a sense of pride at my music collection today – that I earned it with my hard work.

What small things or big things make you happy and enhance your life? Today you can download individual songs for 99 cents, or grab a book on a Kindle for $2.50 (or even free if you love the classics). Going fishing is also free if you have your gear. Behavior change doesn’t have to be torturous and awful. It can be fun!

See why I love New Year’s Resolutions?