Published in: Credit Cards | Jan. 31, 2019

How to Set Effective Financial Resolutions for the New Year

Tired of setting money goals you never achieve? Follow these steps to create New Year’s financial resolutions that stick.

A coffee and cellphone next to an open notebook that read 2019 New Year's Resolutions.

Image source: Getty Images

New year, new you -- right? Unfortunately, most of us tend to lose steam after the first couple of months -- or weeks -- of working toward our goals.

Chances are high that at least some of your New Year’s resolutions have to do with money, and those are often the hardest resolutions to stick to. We tend to be dishonest with ourselves about our own finances, lack transparency when it comes to talking about them with other people, and to top it all off, our money habits are deeply ingrained in our personalities and can be difficult to change.

Whether you’re hoping to make more money, pay off debt, up your savings, or start investing more aggressively, this guide will help you create -- and stick to -- your money goals for the New Year.

Setting money goals you can achieve

One of the most common and effective goal-setting strategies is to set S.M.A.R.T. objectives. This method was originally created as a way for companies to improve employee performance by having them set goals that are specific, measurable, assignable, realistic, and time-related. However, alternatives have developed over time to accommodate other types of goal-setting.

How to set S.M.A.R.T. New Year’s financial resolutions

The acronym S.M.A.R.T. looks slightly different when we’re setting personal money goals. In this case, your resolutions should be:

  • Specific
  • Measurable
  • Ambitious
  • Realistic
  • Time-bound

For example, if your New Year’s resolution is simply to save more money, you’re going to have a hard time sticking to it. That goal isn’t specific, ambitious, or time-bound. It may or may not be realistic, because you have no way of measuring that without identifying the amount you want to save and setting a deadline. While saving money is measurable, the goal you set for saving is so broad, you can’t actually measure your progress.

A better resolution would be something along the lines of, “I want to save $12,000 by the end of the year.” You’ve identified the specifics of your goal in a way that can be measured, and you set a deadline for yourself. You also need to make sure the amount you’ve chosen is ambitious but also realistic. Completely unrealistic goals are discouraging, but your goals should still be challenging. Research shows you’re actually less likely to stick with easy resolutions than difficult ones, perhaps because part of the reward is proving to yourself that you can do hard things.

Breaking your goals down into smaller measurements

While a goal with an end-of-the-year deadline is measurable, you should actually break it down into shorter increments if you really want to set a S.M.A.R.T. objective. The best way to do this is to reverse engineer your goals. To go off the savings example, start with the amount of money you want to save in a year and break it up into monthly, weekly, and daily goals. If you want to save $12,000 this year, you’ll need to save $1,000 per month, on average. That breaks down to $250 per week, and you can even break it down further to $32.88 per day.

Looking at a number like $32.88 feels a lot more manageable and motivational than seeing five figures and a deadline that’s a year away. You can also adjust your behavior accordingly. Look at your monthly savings goal and set up automatic deposits from your paycheck into your savings account for that amount. Your monthly goal can also help you figure out how close you can get by cutting down on fixed costs like rent, electricity, or insurance payments. The daily goal can help you figure out how close you’ll get to your overall objective if you cut out everyday expenses, like eating out for lunch.

Another method is to break your resolution into monthly, weekly, and daily goals that gradually increase as the year goes on. This is best for goals that require a big shift in habits, as it’s often easier to make these changes incrementally rather than quitting cold turkey. A lot of people prefer to break down their savings goals in this way. One popular method is to save $1 on day one, $2 on day two, $3 on day four, and so on, for one month. At the end of 30 days, you have $465 in savings. If you managed to continue the challenge for an entire 365 days, you’d have $66,795 by the end of the year.

The importance of choosing goals that are personal

One crucial goal-setting factor that S.M.A.R.T. goals leave out is the importance of setting goals that are personal. If you set goals to impress other people or win someone else’s approval, you’re very unlikely to stick to them. The easiest goals to stick to are ones that truly reflect our own values and hopes for your future, so make sure you’re honest with yourself about what you want in life.

How to stick to your New Year’s financial resolutions

Changing our behavior when it comes to money isn’t easy. That’s because financial habits are complex and deeply ingrained in us -- not just mentally, but also emotionally.

Whether we like to admit it or not, our relationship to money is emotional. It’s built from a combination of personal beliefs, life events, and our upbringing. Here are some steps to take that can help you keep your money resolutions this year.

Identify the reasons for your bad habits. The first step in changing your financial habits is to recognize what those habits are and where they came from. Whether you learned them from a parent or started practicing them to cope with something else in your life, figuring out the why behind what you do will help you adapt and improve.

Gamify your goals. People tend to think that they’ll stick to their goals if their goals are important. However, a recent study done by researchers at the University of Chicago and Cornell University shows that, in fact, the only factor that actually predicts long-term persistence to achieving goals is enjoyment. Gamifying your goals makes achieving them more fun and enjoyable. You can do this by building in rewards for yourself at each milestone and downloading budgeting apps that make sticking to your budget feel like a video game.

Picture your future. When we set goals that are truly meaningful to us, achieving them can be as easy as visualizing the outcome. In a recent study from Capital Group, participants who envisioned their ideal retirement before creating a retirement savings plan set their objectives 31% higher than those who didn’t. Leave reminders for yourself, such as inspirational quotes and goal countdowns, around your home, workplace, and even in your wallet to help you visualize your future.

Track your progress. Once you set your weekly and monthly goals, track them in a spreadsheet, notebook, or your favorite money management app.

Seek out social support. Study after study has shown the importance of social support in changing behaviors and achieving goals, from the increased effectiveness of weight loss programs that incorporate one-on-one coaching to the importance of accountability groups in addiction recovery. Consider teaming up with a friend who has similar financial goals and setting up weekly accountability meetings.

Avoid guilt and shame. When we misstep on the path to achieving our goals, we tend to shame and guilt ourselves. Rather than motivating us to adjust and push forward, we tend to respond to guilt by ignoring the task completely and focusing on something else -- otherwise known as procrastination. Instead of shaming yourself when you go over budget, recognize your error and adjust next month’s budget accordingly.

Setting up your finances to help you achieve your money goals

Whether your goal is to pay off your student loans, create an emergency fund, or side hustle your way to a higher income, you should set up your finances in a way that makes achieving those goals easier for you.

If your goal involves saving more or building an emergency fund, consider opening one of the best high-yield savings accounts and setting up direct deposits. The extra interest payments offered by these accounts will reward you for saving money, which will make reaching your goal even easier.

Folks who want to pay off debt should consider methods for lowering their interest rate. A good balance transfer credit card can help you pay off your credit card debt interest-free, and refinancing high-interest debt is an option worth considering for both consumer debt and student loans.

Hopping to up your retirement contributions? Maybe it’s time to consider other methods for investing your money. A good online stockbroker will help you grow your wealth more quickly.

Once your accounts are all set up, it’s time to automate your finances so you can reach your goals without even thinking about it. If you want to pay off $8,000 of credit card debt by the end of the year, set up automatic monthly payments to your credit card of $667. If you want to build a $10,000 emergency savings fund by the end of the year, set up automatic monthly deposits of $834 into your savings account. Of course, when you can afford to over-achieve, you should.

By setting the right goals and putting systems in place that help you reach them, you’ll make achieving this year’s New Year’s financial resolutions look easy.

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