The New Year is a great time to set resolutions or to make or update your financial plan. And even though it is already February, it is not too late to set savings and financial goals for 2020! If you are someone who wants to save more, you're not alone. According to an article from the Wall Street Journal, "A recent survey from Fidelity Investments found that 67% of Americans are considering a New Year’s resolution that relates to their finances. More than half of the 3,012 respondents said they want to save more for goals including retirement."
So how can you increase your chances of succeeding in your savings goals? The article from the Wall Street Journal suggests the following strategies:
Set Retirement Goals in January or on Your Birthday: "Academic research shows both New Year’s Day and birthdays are good times to initiate change. Because both mark the start of a new year, they help us 'wipe the slate clean,' said Katherine Milkman, a professor at the University of Pennsylvania’s Wharton School." In an upcoming study by economists, including professor Milkman, researchers found that folks who started saving or increased saving contributions around their birthdays saved more money in the following eight months compared to others who started saving around dates that aren't associated with new beginnings.
Set Specific and Realistic Goals: People often end up failing when they set goals that are either too vague or too extreme. This is why it is important to be as specific as possible when setting goals, and also making the goals realistic. You can even start small and increase as time goes on.
Make a Detailed Plan: Breaking down your goals into smaller, more detailed steps can help you achieve your goals. This can also be extremely helpful if your financial goals involve a longer process, which can sometimes feel overwhelming. Breaking your goals into smaller action items allows you to achieve success while not feeling burdened by looking at the whole picture all at once. This also allows you to adjust and evaluate as you go.
Stress Test Your Plan: "Behavioral economists recommend an exercise called mental contrasting, in which people think about a desired outcome and why it matters". (For example, you could remind yourself that you are saving an extra 5% of your take-home pay each month in order to create an education account for your children.) The next step is to brainstorm potential obstacles to achieving your goal, such as an unexpected medical or repair bill. By brainstorming potential obstacles, you can have a plan in place to tackle the obstacles if and when they occur. An example of preparing for this type of obstacle would be to set up an emergency fund for unexpected expenses.
Use the Behavioral Strategies that Work for You: Some include automating your savings, being patient and recognizing that setbacks will come and are part of the process. Additional behavioral strategies to consider include:
Make "if-then" plans: For example, if your goal is to stop buying lunch each workday, your "if-then" plan might be, "If it is a weekday, I will bring my lunch from home, and include my favorite sandwich and fruit."
Reward Yourself for Wins: When you hit your monthly savings goal, for example, take a small percentage of those funds (say 10%) and use it for something fun or a splurge.
Use Temptation Bundling: Combine something you love while doing something you lack the motivation for or don't like doing. For example, treat yourself to your favorite beverage while managing and balancing your finances.
Use Behavior Therapy: Have you identified a bad behavior is actually triggered by something else? For example, if you find yourself going for an unhealthy afternoon snack each day, ask yourself if you're actually hungry, or if you're really just needing a break from the office. If you're needing a break, perhaps take a walk or choose a healthier alternative that will give you the break you need.
Use Mental Accounting: Mental accounting involves saving separately for different goals and labeling those accounts accordingly in a meaningful way. For example, one account could be labeled "Dream Vacation to Paris" and another account could be labeled "Retirement Lake House Fund".
Set Occasional High-Impact Goals: The idea here is to challenge yourself and mix things up. For example, challenge yourself to see how much money you can save in one month.
Source:
"https://www.wsj.com/articles/want-to-reach-your-savings-goal-in-2020-heres-what-the-research-says-will-help-11577356205," Wall Street Journal.