Did you resolve to slim down your spending or beef up your savings this year? About 41 percent of Americans make New Year’s resolutions, but less than 72 percent are kept through the first week (and less than half are maintained after six months). Why do we fall off the wagon? We’re either too ambitious (one resolution at a time is best) or lack a clear-cut strategy. Translating your goal into an actionable plan (and breaking it up into achievable benchmarks) should make long-term success more possible. Here are some financial resolutions to consider and how to go about them week-by-week.
Change your financial outlook.
Negative thoughts about your finances might be normal — 85 percent of Americans report feeling financial anxiety, according to a Northwestern Mutual study — but having them isn’t beneficial. Research by Sarah Newcomb, behavioral economist at Morningstar, suggests people who believe they’re in control of their financial picture manage their money better, regardless of income, age and education.
Week 1: Take stock of how you feel, subconsciously, about your finances. Every time you have a negative or anxious thought, simply note it. This week is all about awareness.
Week 2: Come up with an affirmation to say to yourself every morning in the mirror, like, “I hold the power in my financial life.” If you’re having trouble, The Secret to Money is an app that provides 20 money affirmations for users to read every day. Choose just one for now.
Week 3: Keep saying your affirmation every morning — and as you say it, close your eyes and visualize it being true (however it might look to you). For example, if your affirmation is, “I always have more money coming in than I do going out,” visualize what that would look like (as far as bank account numbers) and especially how it might feel (content, at peace).
Week 4: Before or after your daily affirmation, start setting aside some time to think about what you’re grateful for in your life. Research has shown that helps us keep our resolutions overall.
Pay off debt.
Total household debt in the U.S.reached almost $15.24 trillion as of September 30, 2021, according to the Federal Reserve Bank of New York. If paying off credit cards, student loans or other accounts is your New Year’s resolution for 2022, sit down and first note your different debt balances — and their interest rates.
Week 1: Choose the payoff strategy that best suits you — two common methods are the “avalanche” method (attacking the highest interest rate debt first, then moving to the second-highest and so on) and the “snowball” method (focusing on the lowest balance first, then the second-lowest and so on). The first technically saves you more money long-term, but the second tends to work well for people who are motivated by short-term wins.
Week 2: Choose an app to help you get started — then, download and begin. Examples? Unbury.Me is a free online tool allowing users to list outall debt and map out a payment plan. Qoins rounds up each of your purchases to the nearest dollar, then applies the extra money to your student loan or credit card debt. And Digit is an automatic savings app that allows you to set a savings goal (like $2,000 credit card debt). Once you’ve reached it, it’ll notify you — and you can put that money right towards your debt payoff.
Week 3: Continue to follow your payoff plan, and reward yourself when you hit benchmarks (paying off $250, $500, $1,000, $2,000). Just make you’re your rewards are proportional to the amount you’ve paid off, not a setback in regards to your goal. If you receive any unexpected money — like a tax refund, for example — you can put that towards your debt, too.
Week 4: While you’re working towards your goal, think about ways to stay out of debt in the future. This could look like budgeting, writing down what you spend in a phone note or an app to keep track of spending. For example, Debitize helps users think of credit more concretely by automatically withdrawing funds from checking any time they make a purchase — then paying the card balance off on their behalf within a day or two.
Get on track for retirement.
What’s likely the best thing you can do right now for the biggest return on your money later on? Amp up your retirement savings. Look at the difference compounding interest can make. Take a 30-year-old with $5,000 in retirement savings. She decides to save an additional $300 per month. Assuming she retired at age 70 and received a 5 percent annual return, she’d have almost $482,000. But if she waited until age 40 to start down this road? She’d have just over $267,000 — almost 80 percent less.
Week 1: Look into your workplace retirement plan if you have one, as well as any available employer matching dollars. If there’s not one available at work, choose an individual retirement plan to set up next week, in the form of an IRA or Roth IRA.
Week 2: Automate contributions into your retirement account. The goal: Contribute 15 percent of your total income. If that sounds too large, start smaller and ratchet up your contributions 2 percent every six months. In a personal retirement plan, you can set up automatic withdrawals from checking on the days you receive a paycheck.
Week 3: Decide how to invest the money you’re contributing. One solid choice: A target-date retirement fund that will keep your asset allocation in line with your goals automatically.