7 Ways to Blow Your New Year’s Resolutions

January 06, 2014

Did you make any financial New Year’s resolutions this year?  According to Fidelity, approximately 54% of Americans planned on making one this year. Whether you avoid making New Year’s resolutions or embrace the challenge of making financial changes in the New Year, we all have financial goals that require some attention.

The problem is that most New Year’s resolutions typically fail. Some 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 if you want those money related resolutions to survive, you will need to avoid these common reasons you may not experience sustained improvement:

1. Set unrealistic or vague goals (or no goals at all)

It is tempting to set lofty goals or get sidetracked by financial pursuits such as a vacation home or new car purchase that may conflict with other long-term goals such as retirement or saving for college expenses. It is also possible that people experiencing high levels of financial stress or with a history of avoiding money matters fail to set goals out of a fear of failure. Other financial goals such as “I want to get my finances in order” or “I want to get my debt under control” are far too vague and likely destined for failure without some tweaking. Financial goals should be limited to the top 3 areas of concern and they should always be “SMART” goals (Specific, Measurable, Attainable, Realistic, and Timely).

2.    Have good intentions without a plan

One common reason that financial resolutions fail is they lack a specific plan of action. Establishing a simple and realistic financial plan provides an alternative approach by turning dreams and good intentions into action steps with real results. The term “financial plan” is often misused, misunderstood, and overcomplicated but it is simply the process of aligning important life goals with your money. Financial plans help provide meaning and direction to money-related activities. Most importantly, putting a plan in writing helps to track progress over time and have a set of written guidelines to drive financial decisions.

3.     Manage your finances without a spending plan or budget

It is very difficult to accomplish financial goals such as paying off debt, saving for a house or car, or retiring at a specific age without a personal spending plan. Most of us understand the importance of budgeting but find the process too cumbersome or complicated. Another common criticism of budgets is that they don’t work because it can be too difficult to actually follow them with discipline and consistency.

Remember the saying “the definition of insanity is doing the same things over and over again expecting different results?” Rather than continuing to get frustrated with establishing and following a budget, consider using a system that works best for your money management style. For some, this may be the “old school” paper and pencil method or an Easy Spending Plan worksheet. Others may prefer using online programs such as mint.com, YNAB or other budgeting software that simplifies the process of tracking spending.

4.     Inability to break bad credit card habits

The inability to change credit card usage habits can stop the progress of financial resolutions before any momentum can actually be established. Following a holiday season where the use of credit cards is common, it is easy to continue to use plastic for future purchases – which can lead to other financial problems if those balances are not paid off after the holidays. Breaking these habits can be a difficult but necessary aspect of change.

For many, this means using cash to pay for “budget buster” expense categories such as restaurants and entertainment (the “envelope system” can help with this). However, it may be difficult to completely say goodbye to credit cards as many issuers are increasing rewards to entice consumers. The good news for those choosing to make purchases with cash rather than credit cards is they will typically spend less.

5.    Poor communication with a spouse about money matters

With most types of behavioral change, it helps to have the support of friends and family. However, changing money habits can be difficult because family and friends don’t always share the same vision of what constitutes smart financial decision making. Secret spending, overspending, and lack of agreement on financial goals are just a few of the obstacles that can ruin financial resolutions related to money. For couples, the inability to work together to reach financial goals can create a great deal of frustration and prevent a financial plan from gaining any staying power.  Couples taking the time to set a date to discuss financial matters and having the ability to agree upon mutual financial objectives are less likely to see money resolutions blow up before the chocolate and roses appear on Valentine’s Day.

6.    Fail to plan for obstacles:

Successful planners have more than a vision of future success – they have a keen understanding of the potential setbacks and obstacles they are likely to face. One of the biggest reasons that financial resolutions fail is the simple fact that emergencies and unforeseen expenses always seem to pop up at the worst possible times. Murphy’s Law provides that if anything can go wrong it will.

Perhaps a way around this likelihood is to plan to fail to some degree with financial resolutions. That’s right, plan for obstacles to appear and create major roadblocks on your journey to financial freedom. Rather than give up, adapt and move forward.

For example, perhaps the biggest unexpected obstacle is that of emergencies or unforeseen expenses. This, of course, is something that can be prepared for to a certain degree. By setting aside emergency funds of at least 3-6 months’ basic living expenses (6-12 months may be more appropriate if possible), future surprises are less likely of completely throwing a financial plan off track.

7.    Procrastination

Approximately 15-20% of people are considered chronic procrastinators. No surprise here, but procrastination is a guaranteed way to ruin financial resolutions to change money behaviors. Changing spending habits or the thought of setting aside money or paying off debt at the beginning of the month may create some initial discomfort.  If so, start with small steps and work your way up towards bigger ones.

So what are your financial resolutions? More importantly, what is your action plan to achieve them? Share your thoughts in the comments section below.