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Daily Capital

How to Set Attainable Financial Resolutions for 2021

When it comes to financial resolutions for 2021, Americans have one simple, overarching goal: “Spend less, save more.”

That’s from our recent Harris Poll sponsored in partnership with Empower Retirement. We’ll have more information coming out soon, but for now, let’s focus on this: 83% of the people we surveyed say they want to minimize worrying about finances next year. So how can this vast majority of individuals keep worry at bay? It may be time to set some attainable financial resolutions.

The folks we surveyed have a few ideas:

  • 41% say their top financial goal is to spend less on non-essential items
  • 38% say their top financial goal is to save more of each paycheck
  • 27%  say their top financial goal is to spend more time planning their finances in 2021

The trouble is that it’s inherently difficult to change our habits. In fact, we’ve been trying to do so for millennia. Fun party fact: The idea of a new year’s resolution started around 4,000 years ago in Babylon, when people would make promises to the gods in hopes of good favor in the year ahead. The most common request? For the gods to eliminate their debts. So while new year’s resolutions can be any number of things — from eating more greens to wearing something other than sweatpants in 2021 — there’s historical precedent for setting resolutions around your finances.

Following, we’ll dive into some top financial resolutions that you can actually keep.

But first, in order to avoid being among the vast majority of people who lose sight of their new year’s resolutions, let’s start with some tips around the mechanics of effective goal setting.

How to Set Attainable Financial Goals

Most of us know from personal experience how difficult it is to change our habits. So the low rate of success with new year’s resolutions isn’t that surprising. However, there are ways to set goals that you have a good chance of actually adhering to. Here are a handful of tips to help you beat the odds as you tackle your resolutions in 2021.

1. Set SMART Goals

SMART stands for Specific, Measurable, Achievable, Realistic, and Timely; these are the criteria we should apply when creating a resolution.

Specificity is the difference between “I want to save more” and “I am going to increase my savings by $50 per week.” Measurable means your goal must be trackable. “I want to feel better about my finances” is difficult to objectively measure. On the flip side, “I want to pay off my credit card debt within six months” is a lot more measurable. The concepts of achievable and realistic relate to each other but are slightly different: achievability refers to your ability to complete a task, while realistic is how a goal will fit into your larger plans. For most of us, writing in a journal every day would be achievable, while becoming a professional athlete usually is not. Timely applies a timeframe in which you want to complete your objective.

2. Focus on Short-Term Goals

It’s difficult to stay on track with long-term goals — life has a way of throwing us curveballs. Creating short-term goals helps us stay focused while slowly working towards the long-term. For example, if you want to run a marathon as your long-term goal, a good short-term goal would be to run three times this week. It’s attainable, and ultimately makes it easier to stay motivated when you’re just focused on this week.

3. Track Your Progress

Tracking and monitoring behavior is proven to help us succeed more than just reviewing our results. Did we run three times this week? Did we save $100 this week? Progress towards a long-term goal can be slow, so monitoring behavior keeps us motivated.

Your Personal Capital dashboard allows you to safely track all of your finances in one place, so for financial goals, make sure you’re regularly logging in to see how you’re doing. Not a dashboard user yet? It’s totally free to use, and you can sign up here.

Here’s what one user, Mary, told us in November 2020 about her experience with our free tools:

“Coming from a personal history of irresponsible financial choices, Personal Capital has been a really helpful tool in turning things around. I compare my changes to a huge container ship in the ocean: it takes a long time to slow, stop, turn around, and gain speed again.

“Personal Capital has helped with each phase of that transaction, from generating a budget and living within our means, to tracking debt repayment, to generating savings, and most importantly to maintaining accountability and seeing progress.

“Progress is slow; it’s a big ship and can’t turn on a dime. But Personal Capital really lets me see how even small changes have added up. When I interact with Personal Capital regularly, my spending goes down and my savings go up.”

4. Keep Yourself Accountable

Get yourself an accountability partner, like a friend, significant other, coach, or financial advisor. This increases your odds of success and the likelihood that you’ll stick to your goals. Positive peer pressure works!

Ideas for Attainable Financial Resolutions

While the Personal Capital team can’t be out there every day making sure you’re tackling your other resolutions, we do have a handful of suggestions for helping your finances in order.

1. Get Organized

Sure, it’s not the most exciting resolution, but getting organized is the first step towards improving your finances. I grew up in the kitchen with my mom, and was always taught the principle of mise en place, French for “everything in its place.” Before cooking, we would clean the kitchen and prep the ingredients: chop the vegetables, make the spice mix, measure out the ingredients.

You can do the same with your finances by using our dashboard to consolidate all your assets in one place. This could also include consolidating your old accounts like 401k accounts from old employers or that extra savings account with a few hundred dollars. These types of accounts just become clutter, and it’s often worth combining them to keep things simple.

2. Pay Yourself First

This is another oldie but goodie when it comes to getting your finances in order. It’s a simple rule that works far better than “I want to save more” because it speaks to how you are going to save more. More often than not, if you spend your money and save what’s left, you aren’t going to have anything to save.

The best way you can ensure you stick to the plan is to automate a savings goal and set up recurring contributions into your savings or brokerage account for the day after you get paid. Your future is your most important bill to pay so make sure you pay that first  — and then spend whatever you have left. Call your Personal Capital advisor to see how you can set up a recurring contribution.

In fact, our very own Paul Deer, Personal Capital’s Director of Advisory Service, has a similar resolution of his own:

“My personal financial focus for 2021 is to focus on systematizing my savings/investment as much as possible by placing automatic transfers in place, whenever I can.”

3. Track Spending

Spending is the area of people’s finances in which they tend to have the least understanding, even though it’s one of the biggest variables in financial well-being. The more efficiently you spend, the more you can save while working.

Once you get to retirement, the same is true. The less you spend, the smaller the portfolio you need to support your lifestyle. Knowing how much you are spending also makes planning a much more effective exercise and will give you a better idea that you are on track.

Read More: How to Master a Household Budget

4. Pay Off Bad Debt

I think of paying off debt as financial cardio: It helps your finances become leaner and more energized. Once you don’t have the drag of interest payments on your cash flow, you can use that cash in other ways. Now, this is specifically referring to bad debt because there is a place for good debt. Bad debt includes high-interest-rate credit cards (which is almost all of them), personal loans for discretionary purchases, or payday loans. Good debt includes student loans, mortgages, or low-rate car loans.

Two common debt payoff methods include the avalanche method and the snowball method. The snowball method is when you pay off the smallest loan first and then take the money you would normally have used on that payment and pay down the next smallest loan. The avalanche method pays off the highest rate debt first and then works your way down to the next highest rate.

Each method has its merits, but it comes down to qualitative and quantitative aspects. Quantitatively, the avalanche method means you pay less in interest, but it often takes longer to feel like you are making progress. Qualitatively, the snowball method usually means that progress takes place very quickly and accomplishments are made early. This can be motivating and help you stick to your plan.

Paying down debt can do wonders for your credit score.

Our Take

Financial resolutions are some of the most common resolutions people make, so we hope these tips help you set and keep your financial goals for 2021 and beyond. Your Personal Capital dashboard can help you track your progress and stay accountable to your resolutions. If you have a Personal Capital advisor, be sure to share your resolutions with them. Whether you’re working to simply get organized and set up a savings plan, establish a debt pay-down goal, or work toward the retirement of your dreams, we’re here to help you achieve your goals.

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Matthew T. Gray, CFP® is a financial advisor at Personal Capital.
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