Many of us like to set goals for the new year about career, health, relationship, or finance, but only a small percentage of people achieve their goals. Among all those resolutions, financial resolutions seem to be one of the hardest ones to keep. Here are 7 common reasons why financial resolutions don’t stick.
1. Unrealistic budget plans
A budget is a plan on where your money goes based on your estimated income and spending, which is usually done on a monthly basis. According to Schwab’s 2019 Modern Wealth report, people who have a written financial plan are more likely to feel financially stable and maintain healthy money habits than those without a plan.
However, if the budget you’ve created is more like a wish list than a practical plan, it is likely that you will soon dump it. A budget is a tool rather than a final goal. The key to creating a workable budget is allocating money to different purposes based on the average monthly expenses. A good budget will make 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 can’t be followed is useless.
[Related Post: Make a SMART Budget for the New Year: 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 identify your spending habits, understand where you waste money, and direct money toward your financial goals.
To be mindful of spending, we 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 templates, or embracing mobile apps such as Personal Capital or Mint. Whatever methods work for you, you need to track your spending consistently.
3. Not cutting unnecessary costs
Schwab’s report shows Americans spend almost $500 each month on “non-essential items.” To build up savings, one needs self-discipline, particularly in terms of cutting unnecessary costs. It may sound like a pain, but it is a necessary step toward your financial goals, especially when you don’t have an increased income.
Do you really need to stop at Starbucks 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: 4 Top Tips on How to Stop Wasting Money]
4. Keeping up with the Joneses
Maybe your friend purchased a new treadmill or your neighbor just got a cool Le Creuset cookware set. It is tempting to also own those nice things and keep up with the Joneses.
Social media platforms also have a significant influence on our spending choices. Images of the extravagant lifestyle posted by influencers lure people, particularly young people, to spend more than what they can afford.
Keeping up with the Joneses is more of a mindset than a behavior because once you have the intention to follow the trend, it never ends. In the long run, you will be regretful for spending the money on things that you don’t really need or care about.
[Related Post: Personal Capital: A Free Reliable Financial Tool to Manage Money]
5. Impulse spending
A study from CreditCard.com shows impulse spending is 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 don’t 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 Impulse Spending]
6. Not using tools for managing and saving money
A survey by Bankrate.com shows one main reason why Americans do not save is laziness. Making a budget, tracking expenses, and saving money require time and effort. It may be particularly hard when you are not using effective tools to 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. Cashback apps such as Rakuten 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 an 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: Tips on Saving Money for a Trip]
There are various reasons why 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.
I usually don’t make new years resolution, which I find to be a bit silly. It’s like how the gym is ALWAYS packed the first 2 weeks each year. If I really want a change in my life, I make it right now. No point in waiting for the new year.
The persistency is way more important than the resolution.
Thanks for the comment. I totally agree that persistency is most important!
My downfall seems to be the keeping up with the Joneses. I am usually really good with the realistic budget but I dont seem to stick to my guns. Thank you for these tips. I am going to set myself another goal.
Failure to plan for unexpected events is probably my biggest issue..Its difficult to plan finances around things that “have not, may not, could not” occur. Putting away finances for things that are more likely to come to pass give it more validation! I need to keep this in check!!!Thanks for the Tips!!
All of these tips are SO true! I don’t make financial resolutions, but I am careful to keep track of my money throughout the year. I keep a budget sheet for myself and it’s so helpful to see exactly where my money is going and what I need to cut back spending on.
Really great points here, resolutions or any time of year! I’m looking hard at unnecessary expenses right now.
Thanks, Kerri. It is always helpful to cut unnecessary expenses.
Managing finances is always tough, moreso for a mom or parent! I like this post as it’s a reminder of where I may be slacking in my financial planning. Always stashing some for rainy days help for sure!
Mae | http://www.thegospelofbeauty.org
Good points. Thanks, Mae!
These are very true reasons. I stopped making resolutions a few years ago, after letting myself down too many times. I find it’s healthier practice to set more realistic short term goals. It works for me.
Thanks, Jenn. Good luck with your short term goals.
My resolutions always tend to fail. Occasionally I’ll go through a phase of impulse buying. It stinks. But, now that I’m laid off, I have no choice but to keep on track.
There is always ups and downs in life. It is never too later to make an adjustment. Best wishes!
I agree with everything you mentioned in here. When we set goals, we should always make sure that those goals are attainable or we know what are they ways to attain them. When I started to travel, I realized those things. It is good to live within our means. Do not splurge everything at once or else we really find it hard when it comes to our finances.