As the holiday season comes to an end, many of us will be looking ahead and making resolutions about how we will do things differently in the coming year.
Perhaps you’re making some long-term financial goals right now to ensure the new year is more stable and prosperous than the year before.
Unfortunately, many New Year’s resolutions created in the last few days of December are promptly forgotten or thrown out before January is over. And the reason why so many people fail at upholding their resolutions is that they don’t take into account the difficulty of habit change.
Thankfully, the study of behavioral economics and the psychology of habit offer insights into how to make resolutions that stick.
How to forge long-term financial goals
If you want to make 2018 the year you reach your long-term financial goals, use the following finance tips for creating your resolutions.
1. Recognize what’s valuable to you
Sometimes when we set New Year’s resolutions, we forget to consider the things we might be giving up to meet our goals.
For instance, let’s say your resolution is to meet a few saving goals for the year. And you plan to reach that goal by giving up all unnecessary spending–from your morning latte at your favorite coffee shop to weekend getaways with your friends.
If you don’t truly value barista-made coffee or traveling with friends, then giving up spending on those things will be easy to do. But it’s likely that you spend money on them for a reason, therefore trying to quit them cold turkey will be incredibly hard.
So before you decide to cut back on your spending, look back on the purchases and experiences that were the most meaningful, enjoyable, or valuable to you over the last year. That will help you recognize where you want to spend your money over the coming year.
Then, cut your spending on things that don’t matter as much to you. That way, you’re less likely to waste money on things that are less important to you.
2. Automate your goals
After you’ve identified what you value in terms of saving goals, start automating your finances around it.
For instance, if you love going to an annual music festival like Coachella but you struggle to pay for it, set up an automatic weekly transfer of money into a savings account for it. That way you have enough time to save up for it and your budget isn’t completely wrecked by it either.
Creating such an automated system for the experiences and purchases that you get the most out of will leave you much more mental bandwidth to focus on your long-term financial goals.
For example, since you know that Coachella will be paid for, you can focus on how to pay off your student loans, save up for a down payment, or increase your retirement savings.
3. Make your resolution an identity-based habit
Setting a big goal to accomplish for yourself in the new year can help you push back on your self-imposed limits at times.
However, you also need to establish new habits to achieve your big goals. And forming a new habit can be very difficult.
For example, imagine that you want to pay off all of your debts in 2018. And, on top of that, you resolve to quit using your credit card.
In the month of January, you put your credit card away and hustle to send extra money to all of your creditors. But then a snowstorm in February leaves you housebound and bored, and you end up going on an online shopping binge.
Once you’ve done that, it’s incredibly hard to put the credit card away again. Not to mention hustle to pay off your debts.
So instead of creating a large goal, habit and behavior expert James Clear recommends that you create identity-based habits for yourself to reach your goals.
To do this, you first need to decide what kind of person you want to be. Then, work to prove to yourself that you are that sort of person with your actions.
For instance, if you want to get out of debt this year, you could resolve to be the sort of person who sends an extra payment to your creditors each week. No matter how small.
Each time you send an extra couple of dollars to your student loans or credit card company, you are reinforcing your view of yourself as the sort of person who works to pay off debt each week.
Those weekly actions become a habit, and you slowly become the person you have decided to be. Over time, you end up reaching your long-term goals. Not a bad plan, right?
4. Forgive your slip-ups
Resolutions often fail because we tend to think of them as all-or-nothing.
For example, if you cheat on your no-credit card resolution, you may feel like you’ve failed altogether. And once you’ve slipped up once, you may feel like you might as well keep on going and charge more to your credit card since you’ve already faltered once.
This also plays into dieting, too. Psychologists refer to it as counterregulatory eating, but it’s more commonly referred to as the “what-the-hell effect.” After you’ve broken your diet once, it’s easy to think “What the hell! I might as well continue to!”
The only way to deal with this effect is to recognize that you will falter sometimes. The “what-the-hell effect” upon any resolution comes from the mistaken belief that we need to be perfect in order to make progress on our long-term goals.
But consistency is far more important than perfect behavior. Recognizing that slip-ups do happen allows you to continue to work towards your goals, rather than give up altogether.
When you do make a mistake, acknowledge that you messed up, forgive yourself, and move on. All the slip-up indicates is that you are a human being.
Reaching your 2018 financial resolutions
Real change is possible for all of us. But it takes more than a resolution that this year will be different!
To meet your long-term financial goals for 2018, take the time to protect the spending that is most important to you and create an automated savings system around it.
Also, figure out what kind of person you want to be, and commit to being kind to yourself when you make a mistake. And, consider performing a year end review to see what worked and what didn’t this year.
These are the best ways to make sure that the changes you want to make in 2018 will stick around until 2018.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|7.39% - 29.99%||$1,000 - $50,000|
|4.98% - 14.24%1||$5,000 - $100,000|
|8.00% - 25.00%||$5,000 - $35,000|
|5.99% - 16.24%2||$5,000 - $50,000||Visit Citizens|
|5.99% - 35.89%||$1,000 - $40,000||Visit LendingClub|
|5.25% - 14.24%||$2,000 - $50,000||Visit Earnest|
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