Good News: Financial Resolutions Might Actually Work

Good News- Financial Resolutions Might Actually Work

New Year’s resolutions have gotten a bad wrap over the years, but for good reason – according to studies, the success rates for some of the most commonly made resolutions are dismal.

One such study conducted by Richard Wiseman, a psychologist at the University of Hertfordshire, found that, out of 700 participants, only 22% managed to see their resolutions through to the finish line.

“Of the 78% who failed, many focused on the downside of not achieving the goals; they had suppressed their cravings, fantasized about being successful, and adopted a role model or relied on willpower alone.”

 

But while eating healthier and getting fit might not keep people interested and motivated past February, a new study suggests making financial resolutions actually works for a significant portion of those who make them.

The Fidelity study found 46% of participants who make financial resolutions kept them for at least six months and found marked improvement in their overall financial health by the end of the year.

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‘“Financial resolutions are actually relatively easy to achieve,” said John Sweeney, Fidelity’s executive vice president for retirement and investing strategies. “With diet or exercise, you have to get up every single morning and resolve all over again, but with something like a 401(k) payroll deduction, you just set it up once at the beginning of the year, and then it becomes part of your lifestyle.”’

So if getting your fiscal house in order next year is at the top of your to-do list, follow these tips to ensure your resolutions actually stick.

 Create a resolution that speaks to you.

Setting a resolution simply because it seems like the responsible thing to do is a surefire way to kill your motivation before even starting on the journey.

The best resolutions will help you alleviate a pain point with your finances or will get you closer to achieving a specific life goal. Say, for instance, you’ve wanted to buy a house but your credit score is low. Setting a resolution to improve your credit score and overall habits surrounding your use of credit is easier to stick to because it’s tied to a larger life goal – becoming a homeowner.

If debt is a significant pain point in your life, creating a debt payoff plan is another power resolution because the outcome is huge – a better quality of life for you and your family.

Get specific.

One of the biggest stumbling blocks when it comes to turning resolutions into habits with some staying power is knowing where to start. If your resolution is simply, “fix my credit score,” that doesn’t identify any essential elements of an achievable goal: the who, what, when, why, and where.

The first step would be to understand the work involved or, in this case, why your credit score is low to begin with. Is the information on your credit report correct, or are there items that need to be disputed? Is your score low because of late payments, a high credit utilization, or something else entirely?

Start with the problem at hand and determine what specific steps you need to take, or habits you need to address in order to be successful.

Set up systems for smooth sailing.

According to the Fidelity study, one of the reasons financial resolutions stick is because it’s far easier to establish systems that take the reliance on willpower out of the equation.

So why not take advantage of this knowledge and set up some systems of your own?

Perhaps your credit score is down in the dumps because your report is littered with late payment marks from various creditors. Addressing that problem going forward is relatively easy – try automating your payments or setting alarm notifications that will let you know a few days before a bill is due. Plenty of apps can also help take this issue off the table.

Find an accountability partner.

While 64% of participants cited self-motivation and a sense of accomplishment as the biggest motivator in achieving their financial resolutions, it’s helpful to have someone else pushing you when things get tough. Sometimes it’s simply a mental thing – knowing you have to report your progress to a third party means you actually have to stick to your word, or risk having to admit defeat.

Find a friend or family member you trust to take on this role for you, preferably someone who is looking for the same accountability on their own resolutions. This ensures you create a network of support in which you are both on common ground.

What financial resolutions do you plan on achieving in 2016?

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