Sometimes you need to force your hands
It’s January 15. How go your New Year’s resolutions?
If the past decade has ever taught you anything, it’s you can never be financially secure enough. So despite the fact that the economy is steadily improving, and your job seems secure, you still made New Year’s investing resolutions and determined to save successfully. And you thought you were set for a productive and prosperous year!
Ironically, a recent study shows that about a quarter of Americans abandon their resolutions within one week after the crystal ball drops at Time Square. Contributing to my Roth IRA? There is still time. Cutting back on spending? But Best Buy is having this clearance sales going on. What about supporting the Red Cross? Well, we are still kind of tight after the most memorable Christmas ever…
No one would argue that it’s not easy to keep your resolutions, especially those that involve life-altering moves. But some tried-and-true measures can help put you on the right track to reach your financial goals where many others have failed.
1. Start early. Don’t wait until the new years’ bell rings before uttering your resolutions; they may be just some impulsive and vague wishes that you are likely to forget once the your hang over subsides. Instead, plan way before the old year ends so you can have time to look back when the memory is still fresh and give some real good thoughts, without pressure and distraction, on what have worked, what need to be worked on and come up with sensible goals. The company froze my pay so I decided to brown-bag my lunches, and somehow manage to do just fine. But I haven’t funded my Roth IRA for quite a while now; maybe next year… Call these “pre-resolutions”; you will have a full list of to-dos for the new year before everyone else rushes to the Time Square. Better yet, start acting on them, albeit a little bit at a time. You’ll have a head start and be gaining momentum going into January 1st when TV reporters starting popping the same old question to the wide-eyed revelers.
2. Be realistic. Let’s be honest here: If you are making $50,000 a year from a 9 to 5 job, you are not going to save up $60,000 by December without the help of a healthy lottery jackpot or some kind of illegal activities. Hoping for something too far-fetched will only make you lose your hope soon and therefore desert your goals fast. Instead, take good inventory of your financial condition - your assets, liabilities, incomes and average expenses for the past six months, and you get a pretty clear snapshot of your reality. Remember to differentiate your “needs” from your “wants”. Every home keeps a different book; one’s cake could be another’s pie in the sky. So proceed with care when making your new year’s resolutions. Do you really need to pursue that 6,000 square feet Mac Mansion on the bay? And perhaps your noble pledge to donate $20,000 this year to United Way is not very practical after all. Failed resolutions can cause you to fall back on your old poor money habits that bring you farther away from your financial goals.
3. Draw plans. In the moment of impulse, people tend to spit out vague words like “Start saving for my kids’ college” or “be responsible in spending” without much of a clue what to do next. This lack of planning will most likely lead you to ditch your grand resolutions without even feeling guilty about it – you were just talking about it, after all. So if you really mean to do something, take time to create a detailed plan on everything about it. Say junior is ten years away from college; you are kind enough to decide to help him out and understand that a 529 plan is good way to go. Now here is the plan: You can afford $6,000 a year, so do research on each weekend in January and decide on a plan, pick the funds, fill out the application and mail it out with your first contribution of $500 by the first weekend of February. Soon enough you’ll get your first statement that shows junior’s 529 is up and running. So is your resolution of “saving for college”.
4. Make it a habit. As we all know, human beings are creatures of habits. You would stop by your favorite coffee joint on your way to work every morning without putting any thought in it, although this habit could potentially set you back a thousand dollars a year. You may even feel somewhat uncomfortable if you skip it for a day. How about turn this around: You purposely skip this Starbucks stop for a couple of weeks, and bring your home brew or enjoy the complimentary java at your office instead. Chances are, you find yourself doing just fine. And the bonus after a year? A sweet extra thousand George Washingtons in your bank. Mission accomplished.
5. Handicap yourself. Life is full of temptations that can derail your very best plans. It has been kind of tough the past couple of years; you have dinner at home almost every night, catch your favorite movies over the Intrnet, and has postponed your dream Hawaii vacation five times! Every body is entitled to some indulgence and splurge after this painful belt-tightening, right? You know you want it. But when your “wants” start becoming a distraction for your goals, you need to have your hands tied before they reach into the cookie jar. If you haven’t done it already, how about setting up a 401(k) or 403(b) plan with your employer? Once established, an allowable amount will be deducted from your payroll each pay period and invested in your plan, which you can’t touch without penalties until retirement. In the case of your junior’s 529 plan, make sure that on the application form you have authorized automatic withdrawals of your $500 monthly contribution from your checking account, so that it’ll be on cruise control.
6. Recruit enforcers. Still find yourself itching for the dough? Time to get others, particularly your loved ones involved. If you wanted to cut household spending and yet every month find yourself $30 away from emptying the kitty with more than ten days to go, perhaps you want to turn the book over to your more frugal better half, and run the number by him/her before you go out and buy again. You may also take advantage of today’s electronic gadgets, such as your computers and smart phones, which should have enough scheduling firepower to alert you when it’s time for action. Empower your children, too – inform them of your resolutions and plans, and let them check off the “done” items on the list. That way, if you by any chance drop the ball on making a contribution to junior’s 529 plan, you sure will hear from him to no end.
Here is a bonus motivation: People who made money resolutions last January felt more financially optimistic and secure by year-end than those who skipped a resolution, a new Fidelity survey finds.
Yet year over year, so many people make and soon drop their new year’s resolutions. It’s not because they don’t have the genuine desire to follow through, or it’s too hard. Very often people lack a concrete plan, or a clear road map and the necessary discipline to guide them through the maze of money saving and investing. They become disoriented, get lost and eventually drop out of the race before reaching their goals. We can do better. Let 2016 be the year in which we get our acts together and make our money resolutions stick.
© 2011 CoolBunch