New Year’s Resolutions and Your Finances: Helpful or Harmful?
January is often seen as a ‘clean slate’ after the indulgence of the holiday season: a time when we rein in the spending, refine our diets, and set goals for the year ahead in the form of ‘resolutions’. Covering everything from diet to exercise to healthy habits (less time spent on social media, for example), most of us set at least one New Year’s Resolution. But, according to a recent YouGov survey, only 35% of people who make resolutions stick to them. Is this practice of New Year goal-setting helpful – or simply too much pressure?
Undoubtedly, the new year is a fresh start: many months of opportunity lie ahead. It’s an ideal time to review your finances – scrutinising your savings, pensions, tax and protection – and make changes that will set you up for twelve months of success. However, the term ‘resolution’ is a weighty one: and past experiences of ‘failing’ can make us feel we’ve lost before we’ve even begun. Why do we feel the need to put pressure on ourselves to dramatically improve our lives – and habits – simply because of the time of year?
Whether you’re a rigorous resolution-setter or somewhat sceptical, research does indicate that starting a new regimen in January can be beneficial – provided all resolutions are thoughtfully designed and framed in the right way.
Why Do We Make New Year’s Resolutions?
We often think of New Year’s Resolutions as a modern pastime – but it’s thought that the practice has existed since the 17th century. On the 2nd January 1671, Anne Halkett (a Scottish writer), wrote an entry in her diary entitled ‘Resolutions’. This entry contained several pledges, such as ‘I will not offend any more’. And, indeed, by the 19th century the concept was so common as to be mocked: an 1802 edition of Walker’s Hibernian Magazine includes an article satirising New Year’s Resolutions, stating ‘the following personages have begun the year with a string of resolutions, which they all solemnly pledged to keep’. What follows is a list of tongue-in-cheek resolutions, such as ‘physicians have determined to […] be very moderate in their fees.’
Clearly New Year’s Resolutions are firmly embedded in social consciousness; but what is it about them that we find so compelling? Cultural historian Anna Katharina Schaffner feels it’s an inevitable by-product of Christmas frivolity: ‘you have over indulged and now it’s time to purify’. It’s certainly true that many New Year’s Resolutions focus on reining in bad habits: from pledging to go alcohol-free during ‘Dry January’, to making vows to curb spending and cut down on credit card usage, we tend to focus on what not to do rather than building healthy habits (which, in itself, is not always healthy).
Making Healthy Financial Resolutions: Our Top Tips
As mentioned, the key to making impactful resolutions might have everything to do with the way the goal is framed – not the goal itself. According to research conducted by Professor Carlbring at Stockholm University – who tracked the progress of over 1,000 people who made New Year’s Resolutions in 2017 – we can enhance our chances of success by steering clear of ‘avoidance goals’. If your goal is to lose weight, for instance, you should focus on building a healthy habit rather than focusing on the abstinence aspect: the ‘will’ rather than the ‘won’t’. In real terms, what this means is: rather than making a resolution to stop eating crisps (‘I won’t eat crisps’), you’d make a resolution to eat carrots and hummus (‘I will eat carrots’); rather than resolving to watch less television, you’d make a resolution to read your book for an hour each day.
With that in mind, rather than focusing what you shouldn’t do this year (i.e. ‘I won’t spend money on unbudgeted items’), here are three positive financial resolutions that could get your 2022 off to a great start.
1. Revisit your financial plan – and take stock
The start of a new year is a great time to revisit your financial goals. After all, what you wish to achieve in the short, medium and long term may well have changed since you first made your plan – particularly following the uncertainty of a global pandemic – and you may need to make adjustments.
It’s important, too, to really scrutinise your current financial position as well as thinking ahead. Inflation may have had an unexpected impact; you may have new liabilities; or perhaps your income has diversified and you now have a new revenue stream. Take stock of the situation and tweak your goals accordingly: being honest with yourself now will only benefit you in the long term – and it’ll ensure that your resolutions are more achievable.
2. Review your protection
Covid-19, Brexit, the changing political landscape… the last few years have been nothing if not turbulent. It’s more important than ever to create a solid foundation for the future. Reviewing the protections you have in place can help effect a reassuring sense of mental stability; which is why the start of the year presents an ideal opportunity to think about life insurance, serious illness cover, and even income protection.
Even if you already have cover in place, do take some time now to assess whether this reflects your current circumstances. Protecting yourself – and your loved ones – in the event of an unforeseen hardship provides great peace of mind, but you’ll need the right level of cover to avoid unnecessary risk.
If you’re keen to curb any uncontrolled spending, a positive way to achieve this goal is to formulate a solid budget. Keeping track of your expenses in this way can help you to scrutinise and control certain behaviours (like splashing the cash on unplanned items or things you don’t really need). You’ll then be able to save more, which is a fantastic additional bonus! Whatever the time of year, there’s no reason to delay setting up that rainy-day fund – and a budget is a great first step.
