According to a University of Scranton New Year’s resolutions study published in the Journal of Clinical Psychology in 2014, just 8% of those who set New Year’s resolutions stick to them. New Year’s resolutions are nothing more than habit change. Why is habit change so hard?
Our brain loves habits. It conserves brain fuel and frees the brain up to do other things, since habits, for the most part, are unconscious behaviors. The brain loves the habits we have so much that when we try to change a habit or add a new habit we are literally waging war with our brain. But there are ways to trick the brain into embracing those New Year’s resolutions. For those contemplating New Year’s resolutions focused around improving your finances and money habits, here’s a cheat sheet to make those New Year’s resolutions stick for 2016 and beyond:
New Year’s Resolution: I Want to Make More Money
If you’re like most people, you’ve got one stream of income – your job. And if you’re like most people you are either poor or stuck in the middle-class. If you want to break out of poverty or the middle-class, you need to begin creating multiple streams of income.
“But I’ve got two kids, weekends filled with running around from one sporting event to the next for my kids, kid birthday parties to attend and already too much job-related work on my plate as it is. How on earth am I supposed to find the time to add another stream of income?”
I agree. If you’re raising a family it’s not easy. It’s already hard. But, understand this, as your kids get older, it gets easier. As they near college age, your kid-related commitments begin to decline. You will eventually have more time to commit to growing those income streams. Now, however, while you’re kids are young, is actually the best time to take baby steps and slowly build something on the side. I’m talking about no more than five to ten hours a week here, devoting yourself to something you are passionate about and that can eventually be monetized. I’m talking about investing in yourself and your future now, so that you can reap the dividends down the road. And trust me, you’ll be glad you did because as your kids get older, their financial needs become larger. Think college tuition, funding marriage, helping them with a down payment for their own home or helping them fund college for their own kids. Here are some suggestions that will help you to make more money down the road:
- Pursue Something You’re Passionate About as a Side Business – Build a side business doing something that you love and that provides value to others and society. When you do something you love, you magically find the time to devote to it. The Wright brothers ran a bicycle business full time and on the side at the same time they were conducting their famous experiments that eventually led to the invention of airplane. Over the course of five years, the two brothers often worked eight hours at their bike shop business and another eight hours on their passion, the airplane. When you do what you love, you are somehow able to find the energy and the time to devote to your passion.
- Take Calculated Risks With Your Savings – Success requires risk. You have to take some risk in time and money in order to build wealth of any kind. I’m not talking about gambling here. I’m talking about an entirely different type of risk called calculated risk. This risk requires that you gain some experience and working knowledge in some area and then put that knowledge to work by taking action. It might be real estate, investing in some private business, starting your own business, etc.
- Develop a Niche in Your Career or Business – Those who have a unique expertise in a particular area are paid the most by their company or are able to charge more to customers or clients than their competition. You can develop your niche on the side, in the mornings, at night or over the weekend through self-study or by taking classes at night. Commit to expanding your expertise in one area thirty minutes or more every day. The knowledge you will acquire will eventually help you make more money. While this takes time and effort, it is an investment in yourself that will forever pay dividends down the road.
- Organize a Partnership With Others – Organizing a team of like-minded, success-focused individuals makes it much easier to achieve success in life and build wealth. Many hands make light work, plus you have multiple brains to tap for ideas and solutions to problems. Andrew Carnegie, at one time the world’s wealthiest man, in the beginning of his working career organized joint ventures with others in the steel, railroad or coal industry in order to leverage what little money he had at the time. His partnerships created many millionaires and resulted in the mammoth company famously known as U.S. Steel. He had very little formal education and was able to accomplish so much through self-education and, over time, became a leading expert in his industry.
- Work Part-Time as an Apprentice – Everyone is no doubt familiar with Donald Trump’s show The Apprentice. The winners get a chance to work with and learn from the Donald. If you lack skills in an industry you think you’d like to work in, seek out a successful person in that industry and offer your services as an apprentice. This has a triple benefit: # 1 it enables you to learn from a mentor, # 2 you can make some extra money, # 3 it gives you an opportunity to test the waters and see if you actually like the work . If you don’t, you can always quit and move on to something else.
- Change Careers – Those who make the most money in life put their own ladder on their own wall. Those who don’t make a lot of money pursue some career or profession that a parent, teacher or other influence in their life advised them to pursue. As a result, they are not pursuing their own dreams or own goals, but instead the dreams and goals of someone else. It’s never too late to change careers. Changing careers may require you to go back to school at night, or devote time every day to daily self-study, but you can do this while you’re still working. Once you get your degree or certification or develop a new expertise, you can then leave your current job or business for a new one that offers increased opportunities and potentially more money.
Making more money means doing something different than you are doing right now. It means working more or taking more risk or investing more time in yourself through either self-education or formal education. But it can be done. Building wealth and becoming a success requires action. If you do nothing, in ten years you will be ten years older and probably stuck right where you are now.
New Year’s Resolution: I Want to Stop Spending Money Recklessly
When it comes to habits, habits of a feather flock together. Our habits are influenced by those we associate with on a regular basis. When it comes to spending money, most people were not taught the habit of living below their means by their parents. As a result, it is very likely that most of your friends are dragging you down with their reckless spending. A night out on the town can sometimes turn into an unexpected $300 night and vacations can turn into investments. Think long and hard about the affect your friends are having on your spending habits. If you hang out with spendthrifts, you will likely become one yourself. If you hang out with frugal individuals, you will likely become one yourself. If you truly want to fix your bad spending habits for 2016 and beyond, you need to make a conscious effort to associate with other individuals who are trying to do the same thing.
New Year’s Resolution: I Want to Start Saving More Money
One way to process saving into your life is to use something called The Bucket System. The idea is to establish specific savings buckets and then automate the savings process. Here’s an example of how The Bucket System works:
- Set Up Your Buckets: Bucket #1 is your Retirement Savings Bucket. Bucket #2 is your Specific Expense Bucket (i.e. saving for a down payment on a home, wedding costs, birth of a child, etc.). Bucket #3 is your Unexpected Expense Bucket (i.e. home repairs, car repairs, medical costs, unemployment, etc.) and Bucket #4 is your Cyclical Expense Bucket (birthday gifts, holiday gifts, vacations, back to school, etc.).
- Establish Savings Goals Per Bucket: Earmark a certain percentage to set aside for each bucket. For example, if you save 20% of your net pay, the allocation might look like this: 10% for Retirement Bucket, 4% for Specific Expense Bucket and 3% for both Unexpected Expense Budget and Cyclical Expense Bucket.
Saving money is a process. Accumulating wealth is a process. It’s all one big process, this thing we call financial success. But if you don’t have a process or adopt good money habits you will never be able to save. It just won’t happen. When you develop good savings habits you feel like you are finally in control of your life. It’s empowering.
New Year’s Resolution: I Want to Get a Handle on My Expenses
This is really a two-step process. Let’s break down the steps:
- Know where your money is going: Look at your bank statement and credit card statement every month. You’ll uncover expenses for things you were not even aware you were paying for, such as club memberships, subscriptions, recurring charges for products or services you don’t even use. Oftentimes these recurring charges are the byproduct of some “free” promotion you signed up for. The problem is those promotional periods end and when they do, that’s when the charges begin.
- Annual Expense Review: Many expenses change over time. Insurance costs, such as life insurance, can actually drop when the life expectancy tables are internally adjusted by your insurance company’s underwriting department. You’ll never know unless you reach out to your insurance agent to find out. Also, review your health insurance to make sure you’re not inadvertently paying for dependents who left the nest, are on their own, and have coverage through their employer. Cable and Internet costs often change when certain channels are added or dropped. You may be paying for channels you were not even aware were part of your package. Calling your cable or Internet provider to secure the lowest fees available should be an annual process. Periodically shop cell phone plans. Increased competition in the cell phone industry is driving down monthly rates. Make sure you are not paying more than you have to.