Latest News: Technology |  Celebrity |  Movies |  Apple |  Cars |  Business |  Sports |  TV Shows |  Geek

Trending

Filed under: News

 

The 3 Pitfalls Likely To Derail Your Financial Resolutions

Jan 9 2014, 6:26am CST | by

 
 

A couple of weeks ago, I suggested 14 possible financial New Year’s resolutions for 2014. Of course, the problem with New Year’s resolutions isn’t making them. It’s following through. One study showed that most resolutions don’t last past 6 months. Perhaps for that reason, over a third of people don’t even bother to make any.

While losing those last 5 lbs may feel like a lost cause, losing that last $5k in credit card debt may feel more urgent. So how can you make sure your financial resolutions stick and turn into lasting change? Here are some pitfalls to avoid:

1. Not setting SMART goals

One of the main reasons that New Year’s resolutions go unfulfilled is that they’re too vague. Saying you want to lose weight isn’t as good as saying you want to lose 10 pounds by the first day of summer. At the same time, those goals should be realistic. Setting a goal of losing 10 pounds in a week just sets you up for disappointment and discouragement.

The same is true for our financial resolutions. Each financial goal should be SMART (specific, measurable, attainable, realistic, and timely). Want to pay off debt? Build an emergency fund? Save more for retirement? How much and by when?

Finally, when setting realistic goals, keep in mind that we tend to overestimate what we can do in the short run and underestimate what we can accomplish in the long run. Set some lofty and inspiring long-term goals. Then break them down into manageable and achievable action steps.

2. Being paralyzed into inaction

In many ways, financial planning is really all about prioritization. After all, we have limited means to satisfy seemingly unlimited goals so we have to make trade-offs. Are you willing to spend less eating out now so that you can retire earlier in the future? Should you pay down debt or build up savings first? Is it worth taking more risk for a higher potential return on your investments?

But even the perfect financial plan is worthless if it’s not actually implemented, which too often is the case. Whether you’ve attended an educational workshop or had a customized plan put together by a personal financial advisor, it’s easy to feel overwhelmed by all the things you need to do. This is especially true if those actions steps involve making complex choices or if the benefit is delayed, which is usually the case in financial planning.

The key is to prioritize not just your money but your time, focus, and attention. Pick your top 3 goals for the year and focus on a small number of attainable action steps. A good financial planner can help here but if you’re on your own, here’s a guide to prioritizing your savings goals.

3. Ignoring future saving opportunities

Regardless of your financial priorities, chances are at least one of them involves saving more money. In fact, spending less and saving more was the most common financial resolution this year. Although there are a variety of relatively painless ways to reduce our spending, the reality is that too many of us just aren’t going to make those changes.

Fortunately, there is a potential solution. In a study by behavioral finance researchers Shlomo Benartzi and Richard Thaler of real retirement plan participants, only 28% of employees were willing to immediately increase their savings based on a financial advisor’s recommendation. However, 56% were willing to increase their savings by 3% per year in the future. More importantly, 80% kept their commitment after 4 years and they went up dramatically from a 3.5% savings rate to a 13.6% savings rate compared to the 8.8% savings rate of those who followed the advisor’s initial recommendation. This approach can be particularly useful if you have a lot of time and many peak earning years ahead of you.

Check to see if your retirement plan provider offers a feature called a “contribution rate escalator” in your retirement plan. If so, you can set the escalator to automatically increase your retirement plan contributions over time. If not, you’ll simply need to gradually increase your contribution rate each year. Either way, you probably won’t even feel it in your paycheck but pretty soon you might be saving more than you ever thought you could. In fact, there’s a book called The Automatic Millionaire that shares real stories of regular people who have become millionaires using this strategy.

Setting goals and creating a financial plan is just the first step. More important are the actions you take and the habits that eventually develop from them. That’s what causes lasting changes and avoids another year of New Year’s resolution disappointments.

Erik Carter, JD, CFP® is a senior resident financial planner at Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff CERTIFIED FINANCIAL PLANNER™ professionals. For additional financial tips and insights, follow Financial Finesse on Twitter and become a fan on Facebook.

Source: Forbes

You Might Also Like

Updates

Shopping Deals

 
 
 

<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

Comments

blog comments powered by Disqus

Latest stories

Angelina Jolie and Brad Pitt exchange Wedding Vows
Angelina Jolie and Brad Pitt exchange Wedding Vows
The actress in Tomb Raider, Angelina Jolie, and Brad Pitt exchanged wedding vows recently. They make a lovely couple and both are from the cream of the crop in Hollywood.
 
 
Nokia partners with Samsung to bring HERE maps to Galaxy smartphones
Nokia partners with Samsung to bring HERE maps to Galaxy smartphones
Samsung has signed a partnership with Nokia to bring its iconic HERE maps on Samsung Galaxy smartphones. Samsung isn't pulling out Google Maps though, rather, it is offering users a reliable option.
 
 
Apple&#039;s first wearable will not ship until 2015
Apple's first wearable will not ship until 2015
If true, Apple, as it has always been, must be very confident about its timing. After all, it will be the company's new product from an entirely different category, and people will most likely be patient about it.
 
 
Jennifer Aniston tasted Jimmy Kimmel&#039;s Wife’s Breast Milk
Jennifer Aniston tasted Jimmy Kimmel's Wife’s Breast Milk
The Friends starlet, Jennifer Aniston shared some very personal matters with the press recently. They included tasting her male friend Jimmy Kimmel's wife’s breast milk! Jimmy Kimmel's
 
 
 

About the Geek Mind

The “geek mind” is concerned with more than just the latest iPhone rumors, or which company will win the gaming console wars. I4U is concerned with more than just the latest photo shoot or other celebrity gossip.

The “geek mind” is concerned with life, in all its different forms and facets. The geek mind wants to know about societal and financial issues, both abroad and at home. If a Fortune 500 decides to raise their minimum wage, or any high priority news, the geek mind wants to know. The geek mind wants to know the top teams in the National Football League, or who’s likely to win the NBA Finals this coming year. The geek mind wants to know who the hottest new models are, or whether the newest blockbuster movie is worth seeing. The geek mind wants to know. The geek mind wants—needs—knowledge.

Read more about The Geek Mind.