It’s that time of year again … everyone is making new year’s resolutions. I’m definitely one of them, I want to pay down my debt and start more aggressively saving for retirement. I make similar resolutions every year and I always start strong. January is great, but then my habits don’t exactly stay habitual. How can I keep the momentum month over month so that my beginning of the year ambitions don’t turn into March memories?
Happy new year!
I applaud your resolve and also want to reassure you that you’re in good company – most of us struggle to stick to our resolutions. In fact, only 8% of people actually achieve them, but if you follow the guidance below, you’re much more likely to be among them!
Now that we’re past the buzz of the new year it’s a wonderful time to address the real topic at hand; how to change your habits for good.
In his New York bestseller, Atomic Habits, James Clear explains the 3 things you must address in order to successfully change a habit:
a) Understand why you do what you do – what need is your ‘bad’ habit currently fulfilling?
b) Start easy and slowly increase your new action(s) over time
c) Anticipate your obstacles and have a plan to deal with them – how will you address the temptation that inevitably comes up?
Let’s break this down by looking at your two resolutions.
Resolution 1: Pay down your debt
a) How is not paying off your debt serving you?
Does it help you avoid feeling into icky emotions about carrying debt?
Does the additional spending money make life feel more pleasurable?
Does not making debt a priority in your life help you feel like the problem isn’t really there (out of sight, out of mind?)
These are serious questions, but until we unearth our true motivations for doing the things we do, it will be very difficult to overcome our bad habits.
I encourage you to take some time to feel into the truth for you. The point of this exercise is not to shame yourself. It’s to understand how to meet your needs in a healthier way.
Another way of looking at this is by asking yourself: ‘if I say yes to ‘x’, what do I say no to?’ By paying more towards debt, what are you paying less towards? Maybe it’s one less restaurant meal a week, brown bagging your lunch, or cancelling that subscription you don’t use any longer.
b) At this time of year, we often feel we need to jump out of the gate and go full out towards our goals. This explains why so many of us fail to achieve our resolutions – we’re trying to win the 100 meter sprint when we need to train for a long distance race. It’s all about slow, steady progress over time.
What is the easiest way to begin paying down your debt? Could you start with an additional $10 or $20 a month? Further, can you set up that amount to transfer from your account automatically so you don’t even have to think about it?
That amount might feel insignificant, but habits change successfully in stages. Once the new action feels familiar it will be much easier to increase it over time. When things feel normal, we don’t have to work at generating momentum.
c) There are going to be times when you might want to spend the money you’ve allocated for debt. Or you might not like that you’re feeling more aware of what you owe because you’re paying more attention to it. How will you address these desires and feelings when they arise?
Could you recruit support in the way of a friend or your partner so they can help keep you on track? Can you go for a walk to move that energy, or meditate to relax? Can you remind yourself of why your long-term goals are important to you?
By really paying attention to what you do and why you do it, you’ll clearly see your patterns and be able to come up with effective alternatives.
Resolution 2: Start saving more aggressively for retirement
a) How is not saving more aggressively for retirement serving you?
Does it help you avoid feeling like you’re behind, that you won’t be able to save enough, or that you can’t save for the future and enjoy life today?
I have found that sometimes this block is mental because some basic financial education will show you that these fears are largely unfounded (phew!)
Based on an annual 6% return (less than the average return of the stock market historically), if you save and invest $1 at age 20, it grows to $5.84 at age 65 – almost 6x as much. However, if you contribute that same $1 at age 55, it will only be worth $1.48 when you retire. Small amounts become big amounts over a long time.
You don’t need to focus so much on the numbers, rather understand that the earlier you start, the less you need to save because investing does the heavy lifting for you.
b) You mentioned that you want to save ‘aggressively’. I’m not sure how much you are considering, but I would caution you to start small and build your way up.
Let’s take an aggressive savings goal…let’s say you want to save 15% of your salary. What is the easiest amount you can start with today that doesn’t feel restrictive to you in any way? Is it 1%, 2%, 5%? Start there, set up an automatic savings plan, and increase the percentage slowly over time. A 1% increase per month should feel very manageable to you and be virtually unnoticeable to your bottom line. By the end of this year, you could easily achieve a very nice savings target!
c) Anticipate where you will run into problems. What causes you to not save for retirement?
Do you try to save based on what’s left over after expenses rather than automating it to come out before? Do you notice that you get tempted to spend money unnecessarily when you go into stores? Do you order food in when you get bored or stressed?
Figure out the chain of events that has caused you to not have the money you needed in the past and develop a system to stop it. Part of this is finding ways to hold yourself accountable. Consider sharing your goals and progress on social media or with a trusted friend or coach.
And remind yourself that by saying yes to your future self, you are saying no to the present temptation that doesn’t serve you in the long term, and in fact harms you by creating more debt.
One final note
Although multi-tasking is held up as the gold standard of productivity, human beings can really only focus on one thing at a time. As you have two goals in mind, choose one to work with first and commit to it for a full 30 days. By then it’s likely to become a habit. Once it feels normal, switch your attention to the next goal and repeat the process. Good luck!
The views and opinions expressed in this column are those of the contributor and do not necessarily reflect those of Equitable Bank. Any information provided is for information purposes only and Equitable Bank makes no representations as to the validity, accuracy, completeness or suitability of any content. You should seek the advice of a qualified professional or undertake your own research before making financial decisions.