How to tackle the 5 most common financial New Year’s resolutions
Every January 1st, millions of people adopt a New Year’s resolution—an attempt to set and follow through on a goal to better themselves in some way in the coming year.
These resolutions, often a chance for a fresh start, commonly involve health or diet changes, financial wellbeing, and becoming a better person.
In 2021, 65% of Americans made a financial resolution to gain a greater sense of security and dig out of survival mode.1 Part of the reason for this new financial concern this year is based on the 2020 COVID-19 pandemic, which continues to be the top financial concern for 2021.1
While most start out with the intention of diligently sticking with their chosen goal throughout the year, New Year’s resolutions are notorious for their high drop-off rates just several weeks into the new year.
How do you persevere to achieve your goal?
If you are one of the many making these financial resolutions for 2021, when it seems to matter more than ever, here are some tips from the financial pros:
1. Save more money
While increasing your savings seems simple enough, it can be difficult to stay the course of the goal as the trials and tribulations of daily life take place.
Pro tip: Automate your savings.
Start by allocating a certain amount of money to be automatically transferred into your savings account, either via direct deposit or transfers you set up from your checking account.
By placing this on autopilot, you remove the possibility of forgetting to contribute a percentage of your earnings toward savings.
Moreover, if you never see the money in your checking account, you may not even miss it.
2. Spend less
If you find yourself constantly wondering where your money has gone at the end of each month, this may be a goal worth pursuing.
Pro tip: Be specific about where to cut back
Compose a detailed plan at the beginning of the year designating which areas you can cut back on.
By reviewing your spending habits over the past year, you may be able to discover multiple ways to reduce your spending in the coming year.
For example, if you are spending more than you realized on going out to eat weekly, try cutting back and eating out just once a week. The more specific you get, the more likely you are to stick to your goal in the long term.
3. Pay off debt
According to a 2021 study, 45% of all American households carry some sort of credit card debt, with a median consumer debt of $2,700 per American family.2
However, college graduates are exiting school with an increasing amount of student loan debt—the class of 2020 is estimated to owe an average of $30,120.3
Given these statistics, if you find yourself carrying more debt into 2021 than you would like, you’ll need to do more than just commit to paying it down.
Pro tip: Develop a strategy
If you have multiple forms of debt, a good starting point is to categorize your debt by interest rate and subsequently prioritize the debts with the highest rates before working your way down.
If you have only been paying the minimum amount on your credit card or student loans, review your budget to see if you have any extra room to increase your payments. If not, use the tips above to get creative and find where you can cut your spending to allocate more towards paying down your debt.
Your financial professional can also help you determine how, if necessary, to increase your payments.
Pro tip: Find accountability
Tell someone about your goal and have them check in on you to see how you’re doing. While it may seem insignificant, having someone inquire about your progress might be just the push you need to keep going.
Having a relationship with a personal financial professional or consultant is a great way to keep you on track and get the right kind of motivation toward your goal.
4. Develop a long-term goal strategy
A long-term strategy is key for achieving any of these financial resolutions, as well as other life goals such as saving for a house, college funding for a child, retirement strategy, or putting money away for a dream vacation.
Preparing for any long-term goal requires dedication, determination, and some guidance.
Pro tip: Set small milestones
Start off by identifying what you would like to achieve and the timeframe in which you would like to do so. Then, because a long-term goal can take years before you see results, set small milestones along the way.
If you are working toward purchasing a house, establish how much you would like to set aside by the end of the year and break it down from there—think in terms of more manageable weekly or monthly amounts instead of the big number at the end of the year.
Pro tip: Bring in a support system
Accountability is valuable for any goal. This could be a partner, best friend, or family member who can give you pep talks when you need them.
For additional help in establishing and carrying out a long-term goal strategy, connect with a financial professional. Whether you need a one-time brainstorming session or an ongoing relationship, having a professional in your corner can provide some powerful motivation.
5. Make or stick to a budget.
While developing a budget can be relatively straightforward, the process of sticking to it over the long term can be strenuous. Most people with a goal of creating and sticking with a budget have a successful few weeks or months before the burden of living by predetermined standards becomes too much to keep up with.
Pro tip: Be realistic
When you create your budget, remember that you are more likely to stick with it if staying on budget does not seem like such a chore. As much as you may want to cut your coffee runs entirely out of your budget, chances are that you’ll stop by a cafe at least once in the next year.
Additionally, dealing with unexpected expenses has the potential to derail your budget, so make sure to have a sinking fund or emergency fund to save up for those big expenses before they come.
Pro tip: Fight discouragement
If for whatever reason you’re not able to stay on your budget, accept the setback and figure out how to continue.
Even if you will not be able to meet your goal for the end of the year, you can at least better position yourself for the coming year.
1 Fidelity Investments. (2020). Fidelity Investments’® 2021 Financial Resolutions Study. Retrieved from: https://s2.q4cdn.com/997146844/files/doc_downloads/2020/Fidelity-2021-Resolutions-Study-Fact-Sheet.pdf
2 Resendiz, J. (2021, February 11). Average Credit Card Debt in America: 2021. ValuePenguin. https://www.valuepenguin.com/average-credit-card-debt.
3 Farrington, R. (2020, August 20). Average Student Loan Debt By Year (Graduating Class). The College Investor. https://thecollegeinvestor.com/32031/average-student-loan-debt-by-year/#tab-con-2.
Financial professionals do not provide specific tax or legal advice. This information should not be considered as specific tax or legal advice. You should consult your tax or legal advisor regarding your own specific tax or legal situation.
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