Posted on January 4, 2017 in Advice
What’s Out & What’s In For Personal Finance in 2017
New Year’s resolutions don’t (usually) work, but we make them anyway.
We make them because there’s something about the start of a new year that inspires us to take a deep breath, take stock of our lives, press the reset button, and try to make things better. That inspiration is a powerful force—if we can harness it for real and lasting change.
Financial resolutions are a perfect example. Most people (that’s right, you’re not alone!) could stand to save more, pay off debt and/or improve their financial habits, and many have resolved to do those things in 2017. But by February, those lofty ambitions will fall by the wayside, replaced by the usual money mis-behaviors and a profound sense of failure.
This year, I propose a different approach. Instead of making resolutions, let’s leverage that clean-slate feeling of a brand new year to discard the old and embrace the new. What outdated behaviors are holding us back from achieving financial health? What new practices can help us reach our goals?
Read on for my list of what’s out and what’s in for mastering your money in 2017.
#1. Out: Overcomplicating your finances | In: Getting back to basics.
One of my favorite financial strategies is Harold Pollack’s index card approach, which says that the best personal finance advice “can fit on a 3-by-5 index card, and is available for free in the library.” In many ways, this back-to-basics philosophy is exactly the kind of thinking that inspired us to launch Dobot.
I’ve seen it firsthand my entire career. People are too overwhelmed by all the options to make the simplest financial decisions. Should I use a spreadsheet or a fancy tool to keep track of my budget? Should I go to a financial advisor or manage my own investments? Should I pay down debt or save for an emergency fund (or both)?
If you’re stuck in this “paralysis by analysis” trap, my advice would be to get back to basics in 2017. Pull out an index card and write down the simple rules you plan to follow in order to achieve your money goals—things like “save 20% of my income” and “review my expenses weekly.” You probably already know a few things that should go on that card, but if you need inspiration, here’s a list of sage (and simple) ideas.
#2. Out: Testing your willpower | In: Automating your finances.
The problem with financial resolutions is that they’re often contingent on self-control, which is a finite resource—every time you use it, you have less willpower left over for the next tough choice. For example, a resolution to stop overspending is easily forgotten the moment you’re faced with temptation and your daily supply of discipline has already been used up.
So how do you combat willpower fatigue when it comes to making good financial decisions? You remove the decision by automating the action.
If your goal is to save more this year, automate that savings with an app like Dobot, which moves small amounts of money from your checking account to your Dobot account a few times a week. You’ll be surprised how quickly you can reach your savings goals without lifting a finger (or noticing the money is missing).
Automation can help with other financial goals, too. Want to erase debt? Set up an automatic payment for more than the minimum, and schedule it the day after you typically receive your paycheck—removing the temptation to spend it. Want to start investing? Your 401(k) is conveniently already automated—you just have to turn it on or increase your withholding (preferably up to what your employer will match).
#3. Out: Feeling deprived | In: Feeling empowered.
There’s no question that the road to financial health takes effort. But if you have the right mindset, it shouldn’t be painful.
That may sound counterintuitive. After all, a lot of money management entails sacrificing some things ($5 lattes, the newest iPhone) so you can spend more on other things (an emergency savings fund, retirement). And sacrifices are painful, right?
The problem with this “deprivation mindset” is that it can actually lead to bad financial decisions. When you believe something is scarce, you’re more likely to want it—whether it sabotages your long-term goals or not.
The solution? Focus on what you stand to gain rather than what you’re giving up, practice gratitude for what you already have, and stop comparing yourself to others. Rather than saying “I can’t afford that,” tell yourself “I choose not to buy that because it doesn’t get me closer to attaining my goals.” Be mindful of what you want, and own your decisions—because you are the thing that’s going to get you there.
What financial behaviors, practices and trends do you think are in or out for 2017? I’d love to hear from you in the comments!