In theory, New Year’s resolutions are a great idea: Pay off all your debt? Nice! Save $5,000 toward a down payment? Smart. But here’s the problem: Resolutions are actually really hard to keep, especially the more ambitious ones.
And yet, studies show that January really is the best time to kick our butts into gear. “There is a powerful psychological sense of ‘out with the old, in with the new,’” says Kimberly Foss, a Certified Financial Planner and founder of Empyrion Wealth Management in California.
The trick is committing to a few to-dos right off the bat, like these three below, so our resolutions stay on track when our motivation inevitably starts to wane.
Put it on autopilot.
Whether we want to max out our emergency fund, invest more or just avoid nasty late fees (or all of the above), automating is essential—and requires zero brainpower after the initial setup. Plus, it ensures that we’re paying ourselves first.
The trick: Set up automatic transfers to your investment and savings account so they happen just after your paycheck is deposited and before you even have time to miss the money.
Earmark extra income.
Banking on a bonus, cost-of-living bump or raise this year? Got extra income coming in from side gigs? Now’s the time to figure out how to make the most of that cash money.
Try upping your 401(k) or IRA account contribution rate by 1 or 2 percent, especially if you expect a raise. (Eventually you want to get to the equivalent of 10-15 percent of your income, including any employer match.) Set money aside for mid-term goals and emergencies with a regular investment account and high-yield savings account, respectively.
Throwing extra cash toward paying off debt faster is also smart. The Fed’s December decision to increase interest rates means we’ll soon be paying more for anything we owe on variable-rate loans and credit cards.
Bullet-proof the budget.
If we pay ourselves first and pay our bills next, it matters less how we spend every remaining penny. That said, if a text from a friend about checking out a new sports bar or an email blast about a huge one-day sale throws us, it may be worth looking a little closer at our spending triggers and patterns.
Mary Gresham, a financial psychologist in Georgia, suggests spending 15 minutes reviewing old statements and considering if those past purchases were worth it versus making progress on bigger goals. “Although you may not consciously realize it, you will be more discriminatory the next time you face a similar situation,” she says. “Over time, your spending patterns will shift.”
Haven’t done a budget in awhile? Neither has most of America. One easy formula that can change that: Allocate 20 percent of your monthly income toward goals, 50 percent for fixed expenses and 30 percent for flexible spending.