Every new year, many of us do the same dance: Set an ambitious New Year’s resolution while in a financial hangover after the holidays and then watch as that start-of-year momentum slowly disappears in the ensuing weeks.
Research has shown that while many goal-setters do fail to keep their Jan. 1 vows, resolutions can actually be effective ways to change behavior, depending on how they’re framed. With that in mind, we’ve rounded up the biggest money mistakes that can doom your goals to save more, spend less, pay off debt or bring in more cash.
It’s a new year, new you — for real this time.
Mistake No. 1: Not setting a specific, achievable goal
When it comes to making financial resolutions, you want a “Goldilocks goal” — something that isn’t so big as to be unachievable but isn’t so small that its effects are negligible. You also want to make sure you have a specific, measurable objective. That means vague plans to “save more money” or “make more money” are out. Instead, aim for “save $X every month” or “get an X% raise.”
Don’t pull those numbers out of the sky. Stephanie Bucko, co-founder of the Los Angeles-based Mana Financial Life Design, likes using a benchmark formula: 60% of your take-home pay should go to necessary expenses and debt payment, 15% should be stashed in savings and the remaining 25% can be spent as you wish.
“You still get to enjoy yourself,” Bucko says. “But it sets a really good balance between saving for your future and enjoying what you have today.”
Of course, that formula isn’t going to be possible for some, particularly those living in expensive cities or parents with young kids. If that’s you, figure out how much you can devote to your resolution by mapping out how much cash you’re bringing in each month and how much you’re spending. Whatever is left over — that’s how much you have to work with for saving or debt payments, says Berna Adat, author of Money Out Loud.
Mistake No. 2: Paying down debt too aggressively
This warning might surprise you, given that debt is the financial bogeyman. But particularly in today’s high-interest rate environment, where you can actually earn money in savings accounts and bonds are paying higher returns than they have in years, putting all of your efforts into paying down debt doesn’t always make sense, Bucko says.
To be clear, credit card debt should be paid off as quickly as possible because it’s so expensive — the average card currently carries an interest rate of over 20%. But if you have a low, fixed interest rate on a mortgage or student loan, you’re likely better off paying that down over time while you also save and invest.
Then, if you do build up extra savings, you can always go back and attack your debt, Bucko says.
“But once you pay off that debt, you can’t go back in time and say, ‘Oh, wow, I wish I could save an emergency fund for this emergency time,’” she adds.
Mistake No. 3: Keeping your financial resolution to yourself
This can (and should) be the year you stop thinking about money as a solo project.
“Everyone has problems with money, and yet it’s something that we’ve refused to talk about, which is nuts,” Adat says.
Bringing at least one friend or family member into the “what” and “why” of your money goals provides some much-needed accountability. As a bonus, it’ll give you a built-in cheerleader for when things get hard.
Having a money partner could mean scheduling regular check-ins where you talk about how you’re progressing and any upcoming potential obstacles (like, say, the temptation to splurge on a child’s birthday party or buy a new dress for a friend’s wedding). Or it can be as simple as sending a quick text every time you take a step toward your goal. Adat, for example, has a years-old group chat where any time someone deposits money into a savings account, they send the money emoji with wings (💸).
“It is amazing how much psychologically that will earworm into your brain,” she says. “It’s just an emoji, but suddenly I feel a little competitive.”
Mistake No. 4: Not using the right tools
Changing our money habits is hard work. You want to make sure you’re taking advantage of any accounts or tools that can make it a bit easier.
If, for example, you want to cut back on spending or free up money to pay off debt, test out budgeting tools like YNAB, Rocket Money, Much and PocketGuard. They’ll allow you to be more intentional about how you’re changing your habits by highlighting specific areas where you might be overspending. (While some budgeting apps are free, others do charge a fee. Be sure you know what your app of choice is costing you — and that it’s worth the money.)
If your goal is to save more money, consider stashing some of it in a certificate of deposit (CD) account, where interest rates are higher than they’ve been in two decades, or a high-yield savings account, where the best options are paying more than 4%.
Mistake No. 5: Not automating your savings
If you’re like the roughly 40% of people who made a New Year’s resolution to save more money, here’s one of the easiest errors to avoid: Don’t simply plan to save whatever is left over at the end of the month.
Instead, in January, set up automatic deposits to your savings that happen every time you get paid. You can set up recurring transfers from your checking account into a savings account, or, if your workplace allows it, have a percentage of each paycheck deposited directly into your savings.
This is helpful in a few ways. For one, you pay yourself first, before you’re tempted to spend it elsewhere. You’re also making things easier on yourself. Rather than having to proactively think about saving money every couple of weeks, you just do it once upfront. Now you have to act to stop saving, rather than the reverse.
Mistake No. 6: Giving up when you mess up
Even if you avoid every one of the mistakes above, chances are you’re going to mess up. (Sorry.) You’ll inevitably miss a savings deposit or you’ll overspend. You’ll carry a balance on your credit card after a particularly expensive month.
When this happens, you don’t want to spiral into what Adat calls a “financial cone of shame.”
Instead, she focuses on getting back on track while reminding herself that slip-ups are normal when trying to change deeply ingrained behaviors: “Mistakes are a part of it,” she says. “That’s how I know it’s working.”
Mistake No. 7: Waiting to celebrate until you meet your goal
Sure, some financial goals are long-term endeavors, like saving for a home down payment or finding that magical budget that allows you to save and spend. To keep you motivated along the way, plan regular check-ins to monitor and celebrate your progress.
These can be quarterly, every six months or once a year — whichever works best for your personality. For more short-term targets, like saving for a summer trip, pick one day a month to track where you’re at, and then reward yourself by doing some trip planning to stay excited about why you’re saving.
“It doesn’t feel big on a month-to-month basis,” Bucko says. “But when you look back over a year, it’s pretty incredible what you can do.”
This article was written by Kaitlin Mulhere from Money and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
The opinions expressed within this article is that of Kaitlin Mulhere and not that of M&T Bank, nor does M&T Bank endorse the opinions.
This article is not intended to provide tax, legal, accounting, financial, or other professional advice. Always consult a qualified professional about your personal situation.