As I write this, everyone around me has thrown off the shackles of self-restraint and entered full-on holiday feast mode. And why not? It's a festive time of year where every excuse is given to eat, drink and be merry. Besides, on New Year's day I'll wake up a brand-new me, armed with a list of New Year's resolutions for diet and exercise.
Quick question: How did this year's resolutions work out for you? If you are like most people, they didn't work out quite as perfectly as you would of liked. Well, in this week's blog I'd like to propose 3 hacks for making 2018's financial resolutions more effective.
Chop It Up
Let's say you want to build your savings up to three months of living expenses. You figure out that you spend about $7,000 per month. But if you look closely at your cash flow and expenses, about $1,500 of those expenditures are discretionary if not downright unnecessary. So in an emergency your living expenses are really about $5,500 in this hypothetical situation.
So you write down on your list:
I, being of sound mind and body, do hereby resolve to have $16,500 in the bank for 2018.
You start the year off with lots of motivation, but then the credit card bill comes in with all those holiday gift purchases. Then the water heater breaks, then Tommy boy needs braces and so forth and so on. By mid-March, you dust off your list and realize you've saved $3,155. Crestfallen, you give up.
But wait, there's a better way. When it comes to your financial resolutions one technique is to chop them up. I'm not saying shred the list into little pieces. I'm saying take your financial resolutions and break them down into smaller micro-goals.
In our scenario above, the strategy would mean saving a little every month toward the goal that is smaller and doable. So, while the goal is $16,500, you create a micro goal of $250 per month. Now, I know what you're thinking, that's not much money and it would take over 5 years to reach my 2018 goal. This is true, grasshopper, but micro goals create major money muscles. After getting accustomed to $250, $500 will seem achievable. Each new micro goal takes you closer. It's not about just math, it's about motivation.
Say Yes to Peer Pressure
It's easy to make a promise to yourself on paper and then ignore it the next day. It's easy to set the alarm for 5:00 am, only to rollover and hit the 10 minute snooze button 12 times. I should know. However, it's not as easy to hit the snooze button when you have friends waiting for you at the Olympic lap pool. If you're not there, their going to be upset with you. They'd love to be sleeping, but you made a commitment to show up and swim laps with them. And when they see you next, they are going to let you have it. And well they should. That's what friends are for.
Actually, that's what accountability is for. We are social animals. Sure we have large brains for doing complex math problems, but it's not just about math, it's about motivation. As social animals, our herd, our troop and our tribe are a major motivation. Think about money motivation in a negative way. Buying that fancy dress/car/toy was motivated by the need to impress your rivals in the pecking order. Social status and approval are like food and water to us humans.
So the idea is to find accountability partners who know you and know the resolutions you wrote down on that piece of paper. These people need to have the permission to ask if you are keeping that promise. And they need permission to peck at you until you get back into line. This isn’t easy to find, so you may even have to hire a financial planner to make it part of the service package to coach you. Be careful for what you wish for. Coaches are known to emphatically react to lame excuses. Your financial planner should do the same.
Begin With Why
I like cookies and ice cream. A lot. It's fun to eat them. They taste good. However, I don't like it when it's time for Christmas photos and I look like Kim Jong Un after he visits a Golden Corral. So when I'm offered cookies, because I look like I eat cookies, I have to remember Kim Jong Un. Why am I saying no to this cookie? Because I'm saying yes to looking and feeling better.
Am I always successful? Let's just say no. But if I remember why I'm forgoing this delight for the why of a bigger goal, my success rate increases.
Money goals are exactly the same. Imagine your financial resolution is to be credit card debt free. Delaying gratification is the name of the game. Brown bagging a lunch is a grind in the age of Uber Eats, but you have to remember why. Booking a staycation rather than an extravagant vacation is a buzzkill, but you have to remember why. Watching the football game at home versus the stadium's 50 yard line with your college buddies isn't glamorous, but you have to remember why.
Use your imagination to visit the end result; in this case, being credit card debt free. What would that mean to you? What would it feel like to have zero balances? What would you do with the cash flow that's no longer committed to paying off credit cards? What would it be like to open up your statements and see a big zero next to how much you owe? The pain now is the pride later. That's the deal. So time travel and remember why you were motivated for this goal.
If you'd like to learn more about the math and motivation behind your financial plan, click here.