How to Create Financial Resolutions That Last
Do your financial resolutions never last? This guide explores how to make financial New Year’s resolutions that stick and propel you toward your goals.
December 7, 2021
Every New Year, we bust out the running shoes, take the junk food to the food bank and finally make a budget, telling ourselves that this year, we’re going to stick to our resolutions.
But come February, our enthusiasm wanes, and our day-to-day routine settles back to what it’s always been.
Why does this happen? Why do our resolutions rarely stick? How can we utilize psychology and modern science to help set resolutions that actually work?
This article will focus on financial resolutions — paying off debt, setting up a retirement account, etc. — but the same principles can be applied to any resolution you may have.
Together, let’s make 2022 the best year yet!
Why resolutions fail
We’ve all experienced a failed New Year’s resolution — but why is this so common?
In an interview with Business Insider, psychotherapist Jonathan Alpert explained some of the most common reasons why resolutions don’t stick. Here are three common themes:
The goals set are not specific enough – “I want to save money,” instead of, “I want to save $5,000 by December 2022.”
The resolutions are worded too negatively – “I don’t want to make dumb purchases that waste my money,” instead of, “I will be more intentional with my purchases.”
The resolutions aren’t relevant to the person – “I want to try this diet because I’ve heard people talking about it,” instead of, “I want to eat better so that I feel better.”
There are certainly other reasons that resolutions fail — sometimes life just gets in the way — but by looking at these common themes, we can learn how to set better resolutions that are more likely to stick.
How to set better financial New Year’s resolutions
If you’re determined to make this year different, achieving your goals starts with setting the right goals. Here’s how.
The more specific you can be with your goals, the more likely you are to achieve them.
If your goal is to pay off debt, get clear on what debt you want to pay off. Is it your credit card debt? Student loans? Mortgage? How much are you aiming to pay off?
Consider using the SMART goal-setting framework, which requires goals to be specific, measurable, achievable, relevant and time-bound.
For example, a SMART goal could be to pay off the $3,500 balance on your Chase credit card as well as the $2,000 balance on your student loans by December 31, 2022.
Be positive and confident
It’s important to make positive goals rather than negative ones. For instance, commit to making more thoughtful spending decisions instead of saying that you’ll stop wasting money.
Likewise, you should be confident. Start your resolution with “I will …” rather than “I should … .” The language you use in your goal setting may seem minor, but psychologically it can make a big difference.
As an example, your resolution could be: “I will wait a week before making any nonessential purchases.”
Find your why
To improve your odds of meeting any goal, it’s important to dig down and figure out why you actually have that goal.
Say you want to pay off debt: What is the real reason behind that goal? Is it to have less stress or to feel more financially free? Is it to improve your finances so that you can afford to buy a home?
We all know that we should pay off debt, we should save more money and we should lose a few pounds. But if we don’t define the reason behind those goals, we often lose motivation.
For example, you could resolve to pay off your credit card debt because it will make you feel more financially secure.
Three financial resolutions worth pursuing in 2022
There are many financial resolutions that are worth considering, but here are three that are likely to have the biggest impact on your life and your financial wellbeing.
Pay down credit card debt
Over half of Americans now have credit card debt, so paying off credit card balances is a popular financial New Year’s resolution.
Credit card debt is one of the most costly forms of debt, and it can really hold you back from your long-term financial goals.
There are two broad approaches to paying off credit cards: Either pay off the highest-interest cards first — this is known as the debt avalanche method — or pay off the smallest balances first — this is known as the debt snowball method.
This article compares the two and helps you decide which is best suited to your situation.
Consolidating debt to get a lower interest rate can also help with your payoff strategy.
Build an emergency fund
Having an emergency fund is important as it can help protect you in the event of a major unexpected expense or a sudden loss of income.
Many experts recommend having at least three months of living expenses set aside. That number can feel very intimidating at first. Ultimately, any emergency fund is better than nothing, so start with what you can afford.
It’s a good idea to keep emergency funds in easily accessible, liquid savings. In many cases, that means a savings account at your bank. It’s not recommended to invest your emergency fund, because you could end up being forced to sell investments at a loss if the market crashes.
Tracking your money can help you be more informed about your spending patterns and allow you to find money for specific goals. In this way, budgeting can serve as the foundation for other positive financial changes in your life.
Making a budget typically starts with tracking where your money is going each month. From there, you can start to build a budget — and then, it’s important to stick to it.
There are many types of budgeting strategies, and different styles work best for different people. Explore the options to find what works for you, and check out our budgeting guide for more information.
We don’t often see our New Year’s resolutions through, but with the right knowledge and the right plan your 2022 goals can be achieved.
Remember to set clear goals, stay positive and focus on your why.
If paying off debt is on your financial to-do list, consider using the Tally app. Tally† can help you consolidate debt and you can potentially get a lower interest rate and get out of credit card debt faster.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.