As we entered the second quarter of the year, it is time to check the status of our new year resolutions. Many of us have set goals for career, health, relationship, and finance, but only a small percentage of people achieve their goals. When it comes to personal finance, here are 7 common reasons why people are not sticking to their financial resolutions.
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1. Unrealistic budget plan
If the budget you’ve created is more like a wish list than a practical plan, it is likely that you will dump it quickly.
I used to be quite ambitious when preparing my budget. Years ago, to save for the downpayment on our first house, I aggressively cut the budget for groceries, dining out, entertainment, personal care…. basically everything. The reality was I failed terribly because budgets in each spending category were not reasonable, which started to hurt our life quality.
The key to creating a workable budget is allocating money to different purposes based on the average monthly expenses. The budget should be one that makes sure you are on the track to your financial goals, but won’t impair your life. If you just start to use a budget for saving money, it is better to start with baby steps. Don’t be too ambitious. A budget that cannot be followed is useless.
[Related Post: Make a SMART Budget for 2017: Aiming to Save More Money]
2. Losing track of your expenses
According to NFCC survey, approximately 60% of Americans do not keep track of their money. If you are not tracking your expenses, you lose a sense of where your money goes. You won’t be able to clearly identify your spending habits, understand where you waste money, and direct money toward your financial goals.
To be mindful of spending, we all need to know where our money is going. There are many ways to do so: Saving all the receipts and organizing them by week or month, jotting down each expense in a notebook, using Excel Spreadsheet templates, or embracing mobile apps such as LearnVest. Whatever methods work for you, you need to track your spending consistently.
3. Not cutting unnecessary costs
To build up savings, one needs self-discipline, including cutting unnecessary costs. This can be a pain sometimes. However, if you are not willing to cut those costs, you are creating barriers to your financial goals.
Do you really need to stop at Starbuck for coffee every morning? Can you eat out less and cook more at home? Are you buying new clothes too frequently? Are you paying for a gym membership that you rarely use? Set a plan to cut unnecessary costs. A number of small efforts add up to make significant impacts on your financial life.
[Related Post: 5 Things I Would not Spend Money on]
4. Keeping up with the Joneses
Maybe your friend purchased a new treadmill or your new neighbor just got a cool Le Creuset cookware set. It is tempting to also own those great things. If you constantly compare yourself with others, you will end up spending the money that you either don’t have or have but should be put to better use.
Will you really be happy when you manage to keep up with the Joneses? You probably will be for several days or even for a few weeks. In the long run, you will be regretful for spending the money on things that you don’t really need or care. In short, keeping up with the Joneses can make your finance suffer.
5. Impulse spending
A study from CreditCard.com shows impulse spending is very common among Americans. How many times have you grabbed a candy bar, a pack of gum, or a hand sanitizer at the checkout line? How many times have you been attracted by the “buy one get one free” ad and purchased something you do not usually use? A common assumption is spending a few more dollars won’t hurt much. Wrong. Small spending here and there can eventually ruin your financial goals.
The best strategy to overcome impulse spending is to have a shopping list. It is even better if the list includes not only the item names but also the number of items. Paying cash for everything is also helpful.
[Related Post: Tips on Avoiding Impulsive Spending]
6. Not using tools for managing and saving money
A survey by Bankrate.com shows, the number 2 reason why Americans do not save is laziness. It should not be denied that making a budget, tracking expenses, and saving money require time and effort. It may be particularly hard if you are not using any online tools to help you manage and save money.
There are many online resources with various functions. Personal finance apps such as Personal Capital allows users to include all personal accounts in one place and provides a summary of spending, net worth, and investment portfolio. Cash back apps such as Ebates and Ibotta pay members cash back every time you shop online through participating retailers. Local deal apps such as Groupon and LivingSocial deliver deals and coupons in local areas, such as restaurants and fitness centers. Use those online tools will save you time and increase efficiency.
[Related Post: 60 Fantastic Online Resources that Help Saving Money]
7. Failure to plan for unexpected events
Despite all the good wishes, something can go wrong–sickness, unemployment, car accidents, etc. These things are out of your control and affect your financial situation. It hurts more if you do not have adequate rainy-day fund.
The best solution is to set aside an emergency fund, which should be six months of your income. If you do not have the fund to cover emergencies yet, make sure your monthly budget includes savings for unplanned events.
[Related Post: Why Money Saving Matters to Me (and You Too)]
There are various reasons why one’s financial resolutions do not stick. Identify which reasons stop you from reaching your goals and figure out relevant solutions. Re-evaluate your financial resolutions and make modifications as needed. It is better to have small but manageable goals than fantastic wishes that are bound to fail.