Formal education may give us a leg up in life and career, but less so on managing money. School Didn’t Teach Me, a SingSaver series, is your informal education in personal finance.
Despite a high rate of failure, financial New Year’s resolutions continue to be a popular custom. Here’s the skinny on why the majority of New Year’s resolutions crash and burn, and how a little planning can go a long way in helping you succeed.
Seriously, who came up with the custom of making New Year’s money resolutions?
More often than not, it’s simply an exercise in futility, one that starts off with you feeling all smug and superior, but quickly turning into feelings of hassle and resistance.
And sooner or later, your resolution to pay off your debt, earn more money, or “buy experiences, not things” (whatever that means), crumbles into yet another abandoned project now languishing in the closet of your failures. The only thing you’ve gotten really good at is making excuses. Ouch.
So familiar is this pattern that failing at financial New Year’s resolutions has become a trope in popular culture. But just like your creepy, inappropriate colleague that doesn’t know how to take a hint, money-themed New Year’s promises just keep coming around over and over again.
What gives? Are financial New Year’s resolutions actually a really good way to achieve our financial goals – and the reason we don’t succeed is because we’re going about it all wrong?
If that’s the case, I shan’t be surprised. After all, school didn’t teach me how to make financial New Year’s resolutions and succeed at them.
Well, if you’re in the same sad boat, join me in exploring how we can fix that. Ready?
How financial New Year’s resolutions are typically made
You know how it goes. You get your friends together (five maximum, please) for a long-awaited catchup. In between debating the finer points of VTL travel, and which year-end sales you’re eyeing, the topic of New Year’s money resolutions inevitably comes up.
After trading ideas and inspiration with each other, you come away from the catchup puffed up with motivation and inspiration.
That night, you declare on TikTok that 2022 is the year you’ll save up money for your dream house. You smile in satisfaction as you watch the likes pour in.
Well, you already know how the story will go. You start off strong in January, but as the months go by, you find it harder and harder to fulfil your savings goal. Maybe a close cousin is getting married, and you need to give ang pows. Or that special edition pair of sneakers has finally dropped and you managed to get into the closed-door sale.
You promise you’ll double up your savings to catch up, but before you know it, Christmas is peeking over the horizon, and the need to buy presents deals the last blow on your New Year’s resolution.
You’ve failed, once more. But the question is, why?
Why financial New Year’s resolutions fail
The problem is quite simple – it all comes down to goal setting.
Getting inspired to put aside money, clear your debt, or control your spending is all well and good – indeed, positive feelings and imagined future rewards play a vital role in helping us shoot for the stars.
However, a financial resolution (or any resolution, really) is simply a goal by another name, and like all goals, you need to make a plan, or you’ll never get there.
All too often, what tends to happen is we get caught up in the excitement of making a money resolution to go with the new year, and never actually get down to making a concrete plan.
And this is how we inadvertently sow the seeds for failure.
How you can make financial New Year’s resolutions that stick
So now we know that coming up with a money resolution for New Year’s is just half of the story. To succeed, we need to make a plan.
So what does making a plan (aka goal setting) actually entail?
Well, it means knowing how to define your goal, what steps you need to take to get there, what problems or issues you might encounter, how you will deal with them, and importantly, what outcomes you want.
That’s quite a lot, so let’s break it down into three main areas.
Area 1: Gaining clarity
Generally speaking, New Year’s resolutions – whether for financial or other goals – often sound good but actually have very little substance. Saving more, spending less, spending only on worthy stuff, etc. – these all appear to be lofty goals, but what do they actually mean?
Even financial resolutions couched in more concrete terms – for instance, clearing my debts – are still too vague and amorphous to go on. How much of your debt will you clear? How long will you take? Under what circumstances will you stop your debt payments to pay for other needs? Where will you find room in your budget to make payments toward your debts?
You need to define and set your goal by asking questions, and some good ones are ‘who’, ‘what’, ‘when’, ‘where’, ‘why’ and ‘how’.
So, it’s not enough to just say, “I’ll save money.” You need to ask:
- How much money do I want to save?
- Why do I want to save this money? Is it to manage frivolous spending? (E.g. maybe you have an inkling that the aircon system is near the end of its lifespan and you might need to replace it? In that case, would an interest-free credit card instalment plan be better?)
- How much can I set aside each month? What expenses will I cut back on to make this happen?
- Where will I save this sum?
You get the idea. The more detailed you are with your questions, the more concrete your plan will be.
Area 2: Dealing with resistance or rejection
You know the saying “failing to plan, is planning to fail”? That sums up what this section is about.
When you embark on your financial resolution, you need to consider that inevitably you will come up against resistance or rejection, and they can come from internal or external sources.
Internal resistance manifests as negative thoughts and feelings towards your resolution, which can cause you to start getting picky, start complaining about feeling deprived, or just get frustrated and give up.
As internal resistance can be very subtle and sneaky, you’ll need to be able to objectively identify and stop such behaviours. It may also be helpful to appoint someone you trust to hold you accountable. When you find yourself missing yet another savings deposit, pay attention to the excuses you come up with.
External resistance comes from outside sources, sometimes from unexpected quarters. Your friend may scoff at your efforts to save up, because she is feeling insecure about her own financial issues. Or a well-meaning relative may feel saving is too slow, and push you to invest your money instead, even though you do not wish to deal with the volatility inherent in investing.
External resistance is best dealt with via open and honest communication, but this may not work for everyone. What if, for instance, you’re not comfortable with confrontation? Or maybe you just don’t see why you have to explain your choices to your loved ones?
Hence, it is important to consider what internal and external resistance or rejection you may encounter, and plan how to deal with them to prevent interference in your money resolution.
Area 3: Defining outcomes and taking stock
Many people often overlook the important step of defining the outcomes they want to see from their financial New Year’s resolution.
However, having a clear outcome is crucial, as it gives you a definite target to work towards. Without this, it is easy to falter or get distracted, and even give up due to a lack of clarity on where you are going, and how long more you have to go.
For example, you’ve decided that you want to save S$10,000 by the end of 2022. Instead of having such a large sum and a long timeline, you might find it easier to aim for S$2,500 per quarter. This gives you more flexibility and a more manageable amount to work towards.
Defining your outcomes also provides you with a pre-arranged point at which you can conclude your resolution – if you choose to do so.
Now, nobody says that a New Year’s resolution has to last all the way to Dec 31, and the point at which you achieve your outcomes is a natural stop for you to take a breather. You can – and should – take the opportunity to appreciate how far you’ve come, what you’ve learned, and how you want to proceed.
You may decide you like what you’re doing, and want to continue saving some more. Or you may decide you’ve saved enough for now, and want to stop. Or maybe after saving for a while, you think you should try other methods of growing your funds.
No matter what you decide, the crux is this. By setting an outcome, and taking stock after you reach it, you are allowing yourself to acknowledge the goal you have just achieved.
By recognising that you successfully saved S$2,500 in three months, or paid off two credit cards by June, or earned an extra S$300 per month for the fourth straight month in a row, you lock in a powerful feedback loop that says yes, you can do this, you can succeed in your New Year’s resolution.
Now, the outcome you achieved may still be far away from your ultimate goal – for example, saving S$2,500 out of S$10,000 by the end of the year.
That doesn’t matter. It’s just the first stop in your journey, and you can set the next goal and resume when you’re ready,
But even if you decide you want to stop, you wouldn’t have failed in your resolution. Why? Because the outcome you have achieved is now your resolution.
Instead of thinking you failed to save up S$10,000, you’ve instead earned the right to say, “Yes, my financial New Year resolution was to save money this year, and I have saved up S$2,500. Now, I’m moving on to something else,” with your head held high.
A long-term personal finance begins with the basics. Get started with a solid savings plan.
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By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.