With 2019 now almost a month old, many of us are looking ahead and making resolutions about how we’ll do things differently this year.
Perhaps you’ve decided to make some financial goals to ensure the new year is more stable and prosperous than the year before.
Unfortunately, many New Year’s resolutions created at the last minute are promptly forgotten or thrown out within a month. It’s difficult to uphold your resolutions if you don’t take into account the difficulty of changing habits.
Thankfully, behavioral economics and the psychology of habit offer insights into how to make long-term financial goals stick.
How to make long-term financial goals
If you want to make 2019 the year you reach your long-term financial goals, consider the following tips.
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, maybe you resolve to meet a savings goal by giving up unnecessary spending, from your morning latte to weekend getaways.
If you don’t truly value barista-made coffee or travel after the workweek, 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. Trying to quit them cold turkey will be hard.
Before you decide to cut back on your spending, look back on the purchases 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 unlikely to waste money on things that are less important to you.
2. Automate your goals
After you’ve identified which saving goals you value, automate your finances to achieve them.
Say that you love going to an annual music festival like Coachella, but you struggle to pay for it. Set up an automatic weekly transfer from your checking account into savings. That way, you have enough time to save up for the expense. Plus, your budget won’t be completely wrecked by it.
Creating an automated system for important purchases will leave you 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 on a home, or increase your retirement savings.
3. Make your resolution an identity-based habit
Setting a big goal to accomplish in the new year can help you push back on your self-imposed limits.
However, you also need to establish new habits to achieve your long-term financial goals. And forming a new habit can be difficult.
For example, imagine that you want to pay off all your debt in 2019. And, on top of that, you resolve to quit using your credit card.
In January and February, you put your credit card away and hustle to send extra money to your creditors. But then a snowstorm leaves you housebound and bored, and you end up going on an online shopping binge.
Once you’ve done that, it can be hard putting the credit card away again, not to mention hustle to pay off your debt.
Author James Clear recommends that you create identity-based habits to reach your goals.
To do this, you first need to decide what kind of person you want to be. Take actions that prove to yourself that you can be that sort of person.
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 extra cash to your student loan lender or credit card company, you’re 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 vowed to be. Over time, you end up reaching your long-term goals.
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 resolution to cut out credit card use, you might feel like you’ve failed altogether. And once you’ve slipped up, you could feel like you might as well keep on going and charge more to your credit card since you’ve already faltered.
This concept also plays into dieting. 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 abandon it altogether!
The only way to deal with this effect is to recognize that you’ll falter sometimes. The what-the-hell effect plays into the mistaken belief that we need to be perfect to make progress on our long-term financial goals.
But consistency is far more important than perfect behavior. Recognizing that slip-ups do happen allows you to continue to work toward your goals, rather than give up altogether.
When you make a mistake, acknowledge that you messed up, forgive yourself, and move on. All the slip-up indicates is that you’re a human being.
Achieve your 2019 financial resolutions
Real change is possible for all of us. But it takes more than a resolution to change things.
To meet your long-term financial goals for 2019, preserve the spending that’s most important to you. Then, create an automated savings system around it.
Figure out what kind of person you want to be. Be kind to yourself when you make a mistake. Finally, perform a year-end review to see what worked and what didn’t.
These are the best ways to ensure that the changes you want to make in 2019 will stick around in 2020.
Andrew Pentis contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|