Making your money resolutions count
There is a saying attributed to W L Batemen: "If you keep on doing what you have always done, you will keep on getting what you've always got."
It is succinct and needs no explanation - and is well worth remembering as we start to think about the time of year and, in particular, the coming season of resolution.
Many of us try to use a new year to make the changes that we know we need to make. Intuitively a new year seems like a good time to make a new life and start afresh to change the way we do things (although there is no reason to wait for a new year if you do not want to). I doubt that many resolutions stick, whether made at New Year or not. We resolve to do things, but a little later find ourselves in just the same position as we were. This is apparent in a lot of different things: our health, our weight, our jobs and, of course, our finances.
Financial change is hard. We usually know what we need to do, but simply cannot endure the necessary change for long. Whether the change required is increasing your income, achieving a budget surplus or changing your investment strategy, it's not easy. Unless we get very, very lucky, change to our circumstances comes from change to ourselves (Lotto should not be relied on). So, we have to find ways to make the necessary changes easier so that they stick.
The first thing to do is to find your motivation. Ideally, this would be something attractive that you are drawn towards such as the deposit for a house or enough money for retirement rather than something negative (if we stay on the current track we will be in the doss house in a few months). However, whether negative or positive, you have to know why you are making the change and hold on to that idea through thick and thin.
You should set a goal that properly reflects what you are trying to achieve - we will have $60,000 for a house deposit by the end of 2015 or we will have $20,000 annual income from our investments for retirement by the end of the year. Such a goal, especially if committed to writing, is powerful psychologically as you have worked out exactly what success looks like and when you want to achieve it.
Second, think about the social context of the resolutions and changes that you are planning. It is critical that you enrol your partner/spouse in to what you are trying to do. You cannot expect to fight well on two fronts - a fight to keep the resolution you have made, and the other a fight with the family.
Although you need to enlist the support of key family members, be careful who else you tell. If you tell people that you will retire in five years or that you have decided to save for a house deposit, you may find doubters and knockers who undermine your resolve.
Third, change concerns your daily routine. This may mean you have to stop the style and type of investing that you are used to - many people going into retirement find this difficult, while others find the sale of poor investments impossible to face up to.
Habits die hard and old habits die hardest. Pick on just one habit and change that before you move on to the next habit.
You are unlikely to be able to keep your resolutions through willpower alone: research shows we each have only a limited amount of willpower and we should spend it at only one place at a time. Therefore, you have to make the changes habitual and easy: Join KiwiSaver if you want retirement savings; adopt the pay yourself first approach if you are saving for a house deposit; or increase the mortgage payments if you want to reduce debt faster. Do whatever you have to so that the changed behaviour is a routine. A lot of financial success comes from knowing exactly what you want and resolving to make the necessary changes.
Martin Hawes is an authorised financial adviser. A disclosure statement is freely available on request or can be found at martinhawes.com. This article is of a general nature and is not personalised financial advice.
Sunday Star Times