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A New Year’s Resolution You Can Live With

By January 9, 2010December 17th, 2020Financial Planning

Ahh, tis the season! Well, actually, it’s the season after The Season. January is that troublesome time of year after we’ve eaten too much, spent too much, drank too much and certainly slept too little. It’s a wistful time when we reflect back on our recent past and gaze forward to our immediate future. Traditionally, it’s a time when we make solemn promises to ourselves in the form of New Year’s Resolutions.

The most common new year’s resolutions, according to a recent study, are loosing weight, working out more often and being nicer to others. Interestingly, among the ten most common resolutions only one concerns finances or money. That seems down right unfair to me!

It’s actually beyond unfair; it’s perplexing. Why don’t people get serious about their finances and include at least 3 or 4 financial resolutions among their 10 resolutions for 2010? As a matter of fact, I have a great one to suggest: save $150.00/month for retirement. By including this simple financial resolution in our annual New Year’s ritual, we can be equal opportunity backsliders!! Why should diet and exercise be the only goals we gleefully surrender to laziness? Shouldn’t we abandon financial goals as well?

All humor aside, this tongue-in-cheek approach actually points us in a positive direction. Most New Year’s resolutions are scrapped within a month, and the reason isn’t hard to fathom; most are made up rather quickly. A study of the most successful resolutions discovered that the ones which had some sticking power are those which have been carefully thought out. They aren’t made up on the spot, nor are they arbitrary. Successful New Year’s resolutions are typically small in number, have been percolating for a while and deal with a really significant issue.

So, in the same way that losing 20 pounds is arbitrary for someone who hasn’t really given fitness a lot of thought, so also is saving $150/month arbitrary and equally unsuccessful for someone who hasn’t given their financial health a lot of thought. When we make resolutions like this, somewhere along the way we start asking ourselves why did I decide to do this? Without a strong answer, we give in to the immediate temptation and break most resolutions by February.

I’d like to suggest that this New Years you do something different – at least with regard to financial matters. Before you make a single new year’s resolution, I want you to think about five key questions. These are the basics which must be considered before any financial plan, goals, strategies or resolutions should be adopted.

  1. How important is it to you to have a long, comfortable retirement in which a reasonable lifestyle can be maintained without the risk of running out of money?
  2. To what extent do you want to assist your children financially, both during your lifetime (cars, college, down payment, etc.) and after you have gone (inheritance, grandkid’s education, etc.)?
  3. Do you think you will need to help your parents take care of any medical or housing expenses in their last years?
  4. How much risk do you want to take that your spouse’s well-being and/or goals 1 –3 above could be interrupted if you die or become disabled?
  5. After you are gone, do you want to leave a meaningful legacy to any school, church or charity that is particularly important to you?

You can’t just blow through these questions so you can get on with making those pesky resolutions. They are meant to be pondered, discussed at length with a spouse/partner, and, for those who are religious, certainly committed to prayer. Even after all that, these questions won’t generate easy answers. They will, however, bring you face to face with some trade-offs that will inevitably need to be made. Preparing for your retirement probably means compromising your current lifestyle, at least a little. Helping the kids with cars or college means compromising your efforts for your own retirement. These are but a few of the issues we all need to tackle.

Seriously considering these questions demonstrates just how foolish it is to make a resolution like “I will save $150 per month.” If you don’t address these five core issues, you have no idea how much you should save or where you should put it. Somewhere deep inside us, we know how foolish this is, and that’s why we don’t really keep many of our New Year’s resolutions.

Now before you beat yourself up too badly because you’ve planned poorly up to this point, consider what your peers are doing. According to a recent survey of American households:

  • 80% of Americans say they are comfortable with their planning, yet 30% don’t save anything.
  • 60% of Americans want to retire by age 61, yet one quarter of them don’t how much money they will need in retirement.
  • 40% of parents don’t know how much college will cost for their children.

Generally speaking, we’re a pretty naïve lot. We’re also pretty optimistic, believing that there’s always tomorrow to start doing the things we should be doing now. Somewhere between irrational optimism, “I can always start tomorrow”, and immobilizing pessimism, “I haven’t done anything, I’m doomed,” lies reality. You can’t change yesterday, but you shouldn’t wait until tomorrow. So if you make any resolution at all this New Year, simply resolve to take up these issues in earnest today. Begin the process and remember that it is a process. Unlike resolutions, a process doesn’t simply start and end at convenient points. A healthy process will continue well into your advanced years. The good news is that with a little bit of effort and a great deal of earnestness, all of your dreams are possible.