Don’t Make a Financial New Year’s Resolution This Year

At the start of every year we are all tempted to make our financial New Year’s Resolutions. Perhaps you already have. My advice: don’t bother.

According to researcher John Norcross in the Journal of Clinical Psychology in 2002, approximately 50% of the population makes resolutions each New Year. Among the top resolutions are weight loss, exercise, stopping smoking, better money management and debt reduction. The problem is that we do great for the first few weeks, but by the month of February we are starting to slip, and our resolutions are forgotten.

Why do we fail? In some cases our New Year’s Resolutions are unrealistic. (I probably can’t lose 50 pounds by the end of the month).

A bigger reason for failure is that we try NOT to do something, instead of trying to DO something. If I decide to NOT eat one meal a day as a way to lose weight, I probably won’t be successful. My brain is hard-wired to eat, so going against my natural instincts won’t work. However, if I try to DO something positive, like exercise or eating healthy foods, I’m much more likely to be successful. Human nature wants to accomplish something positive, not avoid the negative.

So what if I have more debt than I can handle? What if I spend too much? Should I make a resolution to “stop spending so much”? No, that probably won’t work, because I am trying to NOT do something. Here’s a better approach:

Start by deciding that this year you are not making any financial New Year’s Resolutions. Since most resolutions fail, there is nothing to be gained by trying something that won’t work.

Next, decide to take three positive actions. These are not New Year’s Resolutions; they are actions that can be taken at any time of the year.

1 My first positive action is that I will make a household budget, so I know where my money goes each month. It doesn’t have to be fancy or complicated. I can use a pen and a piece of paper, or a spreadsheet, or I can use one of the many excellent computerized software tools on the internet.

2 My second positive action is that I will use my brain! I will think! I will write down everything I spend money on, and put it in my budget, and I will read it. I will analyze it. I will use my brain and I will ask myself questions about my budget, like “should I really be spending $400 on coffee at the coffee shop each month, or is there a better way to spend my money?” With the numbers in front of me, it will be easy to decide what changes are necessary.

3 After taking control of my finances and crunching the numbers, it may be obvious that I can’t solve my debt problems on my own. Cutting back a few dollars per month on coffee will help me pay off the $2,000 I owe on my credit card, but it won’t make a big dent if I have $50,000 in credit card and bank debt. If that’s the case, my third positive step will be to get professional help. If my teeth hurt I talk to a dentist; if I break my leg I go to a doctor; if I have financial problems I should go to a credit counsellor or meet with a licensed bankruptcy trustee. A credit counsellor or bankruptcy trustee will give you a free initial consultation, and help you understand your debt options.

If you really want to make New Year’s Resolutions, that’s fine. But I believe that we can improve our situation at any time of year, so if you have financial problems, don’t make a resolution, just take three positive steps, and look forward to a better future.