3 Top Financial Resolutions for the New Year — and How to Stay on Track
The start of the New Year is an inspirational time. The calendar resets along with the resolve to be better and do better at reaching our goals than we achieved in the year prior. Fidelity Investments’ 202 New Year Financial Resolutions Study, which surveyed more than 3,000 U.S. adults, found that 67% of respondents considered a financial resolution in 2020.
Of those who said they plan on setting a financial resolution, the top three resolutions cited were fairly broad. Here are the most popular money resolutions; if you want to work toward one of these goals, we also share tips to help them stick year-round.
1. Save money
53% of respondents who were considering a financial resolution said they wanted to “save more”. The general advice is to build up at least three to six months’ worth of emergency savings. This amount is in addition to saving money toward other goals, like retirement, saving for a home or vacation.
The bottom line is that there are likely many reasons to save, but the idea of saving can feel difficult, especially if it feels like you’re being deprived of doing something else with that cash (like making a fun purchase) or if you’re living paycheck-to-paycheck.
How to stay on track
Automate your savings. You can’t miss what you didn’t notice to begin with. Sending money to your savings account automatically each paycheck or every month can help you grow your reserves without you realizing the money is gone. Automating your savings is free through your financial institution and can be setup in a few minutes online.
Start small. You don’t have to start saving a huge amount of cash from the get-go. Be realistic about what you can afford to set aside for an emergency fund to keep the habit sustainable and as least painful as possible.
Save half of extra cash. When you get one-off windfalls, whether it’s a work bonus, cash gift, or a tax refund, commit to saving half of it to boost your savings goal. When you set aside half of the funds toward savings, you can do as you wish with the rest of the money.
2. Pay down debt
In a close second place, 51% of respondents said paying down debt was their top financial goal in the resolutions survey. If you’re caught in a debt cycle, it can feel difficult to get out. Daily compounding interest on credit cards, for example, can quickly increase your balance if you continuously roll balances month over month.
How to stay on track
Use cash only. To successfully pay down debt in a timely manner, you’ll need to stop adding to your overall debt toll. Leave your credit cards at home heading out of the door. Allot yourself a weekly cash allowance to budget so you’re forced to spend within your means, instead of relying on credit.
Start small with the debt snowball. Paying off debt, in general, doesn’t have immediate rewards, especially if you have multiple high-balance accounts to repay and don’t see progress. To keep yourself motivated, find your lowest-balance account and aggressively pay that one off while making minimum payments on the other accounts. When the lowest balance is paid off, direct the extra payments toward the next lowest-balance account.
Get rid of high interest rates first. The debt snowball approach is great if you need small wins to stay on track with your resolution. But if your main goal is to save as much money on interest while paying off debt, use the debt avalanche method.
For this approach, you’ll identify your highest interest rate account, and aggressively pay that account down, while making minimum payments on everything else. You’ll then cross off the most expensive debt from your list for a greater long-term savings impact.
3. Spend less
Finally, the third most reported financial resolution for 2020 is to spend less money. Technology makes it extremely convenient to make purchases in a second. For example, Amazon customers can use the website’s “buy now” feature that makes spending an instant act.
According to The Happiness Advantage by Shawn Achor, adding just an extra 20 seconds to start a bad habit, can deter you from acting on the bad habit. Exerting a few more seconds of energy is enough time to make better choices.
How to stay on track
Remove mobile shopping apps. Shopping apps make spending money an easily accessible pastime. Delete any retail and shopping apps from your mobile devices so you’re not tempted to launch the app for a quick shopping spree. Doing so also forces you to physically go to a store or visit a website — which may require more steps to checkout — compared to an app.
Don’t save payment information on retail websites. Websites can still trap you into unplanned or unnecessary spending. To make the process a bit more time-consuming, remove any saved payment methods from your retail accounts and log out of the site every time you visit.
To make a purchase, you’ll have to take extra steps to log in, physically pull your credit card from your wallet (which may be across the room), and manually enter your card information.
Get friends to join a no-spending freeze. External motivation and accountability helps, too. Enlist a few close friends on a monthly no-spending freeze so there’s mutually no pressure to spend on certain planned days throughout the year.
You don’t have to tackle your New Year’s resolution alone. Sharing your goals with a trusted friend or accountability buddy, can help you stay on track. Find out how a financial coach can help.