Financial New Years resolutions

January is, of course, considered the time of new beginnings and a fresh start to the new year, with many people fostering a brand-new perspective to hopefully improve their lives. “New Year’s resolutions” are notoriously filled with good intentions, but difficult to maintain by most people over the long-term. If you’re considering making changes to your personal finance journey in 2023, it’s worth having a conversation at the beginning of the year about how you are going to become (and stay) motivated to make financial changes for the rest of the year. But there are some problems with using New Year’s resolutions as a “start to a new beginning.” First, resolutions are often used by people as a gauge of what they think they should be doing rather than what the person wants to do. Are those resolutions based on your needs or on society’s expectations? Yes, you should build a budget this year, max your IRA, save for vacation, or lose that pesky 20 lbs. that always comes back. But when push comes to shove, are you willing to do the work? If you were, you probably would have done it before January 1st. Many studies have shown that most people fail at completing their New Year’s resolutions, particularly as they age. Similarly, most extreme or fad diets are simply too difficult for people to maintain over the long term. Fitness experts often talk about how dieting doesn’t work, but lifestyle change does work. Reaching your financial goals is similar; it requires a lifestyle change not a “quick-fix”. So, before you commit to really gaining control of your finances in 2023, recognize that it might require a long-term lifestyle change. Real financial goals do not start on New Year’s, they are something that need to be worked towards continuously throughout the year.

What are some examples of good financial goals for 2023?

Obviously, everyone is at a different point in their personal financial journey. Some might just be starting their careers and focusing on budgeting, while others might be purchasing property, or preparing for retirement. Regardless, there are some short-term annual goals that work for most people:

• 1.) Build a budget to allocate funds for living expenses.

• 2.) Save towards your target emergency fund.

• 3.) Target (and maintain) a savings rate, such as 15% or 20% of your income saved each year in a retirement account or high yield savings account.

• 4.) Maxing an investment account, such as an IRA, 401(k), or HSA.

• 5.) Paying off a certain amount of high interest debt (credit card, auto loans etc.) by the end of the year.

• 6.) Hitting a target amount saved for retirement in your tax advantaged plans.

• 7.) Saving a specific amount for lifestyle goals, such as vacations, new home purchases, or weddings.

• 8.) Making an estate plan, including a will, trust, and medical directives.

“Financial Success” in 2023

When I have meetings with people looking to improve their financial situation, they will often mention how they want to reach their goals and become financially successful. Your internal self-motivation is obviously critical to reach your financial goals, but what exactly does it mean to be “successful” in this context? There are obvious measurements we can make to explore this, such as net worth, retirement savings rate and balance, debt, credit score, and home equity. These things can be important, but they should not define your success in any way. The number in the bank account is important but only to a certain extent. A large study by psychologist Andrew Jebb and others in 2018 found that emotional well-being peaked at around a salary of $75,000/year and $95,000/year was ideal for “life evaluation,” which considers long-term goals and comparisons to others. This suggests money gets you part of the way, but it is not the whole story. If money can’t strictly buy our happiness, what is the alternative? I define financial success as having enough money to comfortably live the life you want to live. That could mean almost anything depending on your background, career, lifestyle, and goals. So personal financial success is not a “one size fits all” endeavor. Therefore, it’s important to carefully consider your financial goals for 2023 and how they relate to your personal situation. Success means different things to different people. Does it mean retiring at 50 and traveling the world? Or does it mean working until you’re 75 because you are incredibly passionate about your career? Or maybe it just means that you can live a simple life and leave a legacy to your children and grandchildren. Keep this in mind when you’re considering “New Years resolutions” or your approach to your finances in the new year. Focus on realistic attainable financial goals that help you and your family live the type of life you want to live.