A couple of weeks ago, I shared an article about creating a new year “system,” not a resolution. The core idea is that a successful personal or financial change in life works best if it’s centered around small, sustainable, daily steps rather than big, dramatic goals. Although the article offered a few specific examples, the aim of the article was to help people define their own goals and daily steps.
Now that the new year has dawned, however, many people are waking up, switching out the new calendar for the old, and thinking to themselves about how they can make this year a great one. With the expensive holiday season recently past and many people reflecting on the state of their lives, it’s not a surprise that many people conclude that now is the time to begin real financial change in their lives.
Here are five financially smart New Year’s resolutions that can bring about major financial change, along with how to turn each resolution into a sustainable daily habit.
I resolve to pay off my debts.
Debt repayment is a common resolution that many people make once they realize how debt payments really are a weight around your neck. They’re bills which actually give you nothing other than cover for spending missteps you already made.
The overall advice for repaying debts is clear. You simply build a “debt snowball,” which is a listing of your debts in some order (either by balance: smallest to biggest. Or by interest rate: biggest to smallest) and then make minimum payments on all of your debts while making the biggest extra payment you can to the top debt on the list. When you can, cross off that top debt and move to the next one, with the lack of minimum payment on that paid off debt helping you to accelerate your debt repayments. Keep going until they’re all gone.
How does that translate into a daily habit? It really comes down to fixing the overspending behaviors that got you into this situation to begin with. In order to accumulate a lot of debt, you must have a lifestyle that involves consistently spending more than you earn, so you need to cut it into a lifestyle of spending less than you earn.
One powerful way of doing this is to switch to a monthly budget for entertainment and hobbies and other “wants.” Basically, each month, you establish a cap on “fun” expenses and you stick to that cap.
This easily translates into a daily habit: today, I will only use the cash in my pocket to buy fun things. At the start of each month, withdraw that “fun money” from your checking account and keep it with you. Use only that money for “fun” expenses and decide for yourself what to splurge on and what to skip, realizing that when the money runs out, that’s it until next month.
I resolve to start saving for a down payment on a house.
Many people dream of homeownership but recognize that homeownership is much more expensive without a down payment in hand. Not only is the mortgage bigger, but you also have to face the additional cost of mortgage insurance.
The best way to avoid both of those traps is to simply have a down payment in hand when you go house hunting — but that can be hard to accumulate. However, the more you have in hand, the better, so it makes a lot of sense to start as soon as possible.
You can easily translate this into a regular habit of sorts by automating those savings upfront. Simply set up an automatic transfer from your checking account to a savings account somewhere such that a regular amount is transferred every week or every month and then resolve to never turn it off.
In terms of practicality, this means that you’re going to have to look for ways to trim your spending at least enough to cover that automatic transfer. There are a lot of specific things you can try, from switching to store brands for all of your household supplies to canceling your cable bill, from shopping around for insurance to moving to a smaller place. You might want to consider resolving to spend the first 60 days of the year coming up with one specific thing you can do to cut costs going forward.
I resolve to start saving for retirement.
This resolution has a lot in common with the previous one. In both cases, the goal itself is easy. All you have to do here is sign up for your workplace retirement plan or else sign up for a Roth IRA on your own and set up an automatic withdrawal to fund those accounts.
The trick, as with the down payment saving, is coming up with the money to consistently make this happen without disrupting your life or going into debt. Most of the strategies from the above section apply well here, too. Simply look for steps that can easily reduce your spending going forward, like canceling a bill or a subscription or making an easy change to your spending routine.
I resolve to give up a vice (smoking, drinking, drugs, soda, candy or whatever).
Vices can be incredibly expensive. Spending money frequently on cigarettes, alcohol, soda, drugs, candy, or anything else you consume frequently (besides food and water basics) is a constant drain on your finances. Beyond that, vices almost always have long term health consequences that will eventually result in health care costs. There can be social costs as well.
It’s no wonder, then, that many people choose to kick a vice habit as their New Year’s resolution, and it’s a good one for a daily approach. Vice habits are often effectively kicked by doing it one day at a time and focusing solely on today’s success. As you keep things going day after day, week after week, month after month, not only does your pride grow in your string of successes, the physical and psychological desire begins to shrink a little, too. That’s not to say you won’t still have cravings, but that they will often become less frequent, less intense, or both.
Your daily habit, then, is to simply avoid that vice. Today is all that matters with a resolution like this one.
I resolve to get my health in order in part to keep health care costs low.
Many people choose a weight-related or fitness-related resolution for the new year. Perhaps they want to improve their appearance or simply feel more energy and feel better about themselves. Regardless of the core reason, one big benefit of any health or fitness-related resolution is that successfully sticking to it often results in lower healthcare costs in the long run, and in the short run it often results in lower food and beverage costs.
Again, this type of change lends itself to a daily habit extremely well. You can simply commit to an easy daily fitness routine like walking around the block or doing ten pushups. Set your requirement for success fairly low and remind yourself frequently that you can always choose to do more on any given day. Your daily “goal” might be ten pushups, but there’s nothing wrong with doing some more if you’re already down there. There’s nothing wrong with walking another lap around the block.
The same thing is true (to an extent) with diet. Adopt a simple daily dietary habit to follow, something that’s potentially sustainable for a long time. For example, one resolution you might try is to commit to skipping breakfast and having a vegan lunch. Another strategy might be to just cut out all snacking after dinner. Those are daily habits that, if stuck with, can bring about real change in one’s health.
You can do this!
The nice thing about breaking a financial goal — or any other goal — into a clear daily step is that it makes the goal much more approachable. Saving $5,000 for a down payment seems like a huge goal, but finding ways to come up with $15 each day sounds much more possible. Doing 3,600 pushups seems practically impossible, but ten a day? That can be done.
Focus on what you need to do today and get it done. You can do this! Good luck!