Resolve to Improve Your Financial Wellness in 2015

December 29, 2014

According to the sixth annual New Year Financial Resolutions Study from Fidelity, fewer Americans are considering a financial resolution for 2015. Only 31% of survey respondents have considered making a financial resolution compared to 43% last year.  Should we be concerned that less Americans are considering a financial resolution for 2015?

Some people believe that the problem with New Year’s resolutions is that they typically fail. Studies suggest that 25% of resolutions fail within the first week. Over time, the success rate of resolutions decreases significantly with less than half of people able to sustain change over 6 months.

So should we abandon making financial resolutions in the first place? Not so fast my friend…just over half of the people who made resolutions in 2014 reported improved financial well-being and nearly three out of four people accomplished at least 50% of their goal. Contrary to popular belief, making resolutions may actually help improve your financial well-being.

Will you be creating any financial resolutions this year? The top three financial resolutions this year are saving more (55%), paying off debt (20%), and spending less (17%). Here are some tips to improve your overall financial wellness whether or not you actually choose to create a financial resolution for the New Year:

Commit to saving more. The Fidelity poll found that 55% of those surveyed plan on saving more in 2015 making this the most popular New Year’s resolution for the fifth straight year. The best way to save more is to make saving an automatic process. Automation will help simplify your life and give you a psychological boost when it comes to following through with a savings plan. Set up a direct deposit into savings or schedule regular contributions from your checking account once you’ve been paid. I’ve tried the other way (saving what is left over at the end of the month) and it just doesn’t work!

If you had trouble with raiding the savings account in the past, consider making it a little harder to access your savings.  Perhaps try using a bank or credit union on the other side of town or an online institution. You can compare savings rates at sites like DepositAccounts or BankRate. Just remember that getting into the habit of savings is more important than securing the highest interest rate. Finally, don’t forget to set specific goals and track your progress, especially if you are saving for multiple objectives (emergency fund, vacations, car replacement, etc.), which is also recommended.

Start eliminating problematic debt. By problematic debt, I mean high interest that costs more than what you can expect to earn by investing instead. This definition partly depends on your risk tolerance. If you’re more aggressive, you might expect to earn a 7 or 8% average annualized return on your investments. If you’re conservative, it might be closer to 4 or 5% and 6% if you’re in the middle. Nevertheless, credit card rates are typically much higher than any of these so pay them off before investing, starting with the highest interest balances. Here is a great calculator to help – Debt Blaster.

Take control of where your money goes with a personal spending plan. Some people still call this old fashioned concept of matching money with life goals a “budget.” Whatever you choose to call it – have one and make sure your budget/spending plan tells your money where to go (before the month begins) with purpose!

If you want to have more money to save and/or invest, you first need to have an idea of where your money is going.  Some people track every dollar using online budgeting tools such as Mint, YNAB, and Personal Capital.  Others prefer using Expense Tracker worksheets.

Once you know where your money is going, consider these (Mostly) Painless Ways to Save Money The main idea is to identify how much you have available to save. Then, put savings at the top of your priority list as is shown in this Easy Spending Plan.

If you are concerned about staying on track with your financial resolutions, check out my blog post from last year on 7 Ways to Blow your New Year’s Resolutions. Perhaps a better approach to improve our finances is to go beyond setting annual resolutions. Improving our personal financial wellness should be viewed as an ongoing process no matter which season of life we are experiencing.