NerdWallet's Smart Money Podcast - How can I (actually) keep my new year’s money resolution?

Episode Date: December 16, 2019

New Year’s money resolutions are common, sure. But keeping them is a whole different story. In this episode, Sean talks with Nerd Kim Palmer about the best tips that can help you actually achieve your money goals in the new year.

Hey nerds, welcome to NerdWallet's Smart Money Podcast, where we answer your money questions in 15 minutes or less. I'm your host, Sean Piles. This episode, I'm joined by the lovely Kim Palmer. Hi, Sean. Hey, Kim. I'm so happy to finally have you on the show. I'm so happy to be here. Well, I'm going to put you to work, so I hope you're ready. To start, can you please read this episode's question?

Let's do it. This episode's question comes from Leslie in Indiana. She asks, it's that time of year again, New Year's resolution season. Every year I make a New Year's money resolution and every year I fail to achieve it. In 2020, I really want to pay off my debt and keep my resolution, but I'm not sure how. What advice do you have to help me keep my money resolution? I'm so glad Leslie asked us this question because it's something that we hear a lot this time of year. People want to set big money goals for 2020 and make sure they accomplish them. And it's that second part, the actually accomplishing the resolution, that's really tricky. You're right. I think it's something that all of us can relate to, even if the specific money goal that we're talking about is different. We at NerdWallet,

we actually did a survey last year and we asked people what kind of money goals they have. And first of all, we found that the vast majority of Americans, 84% say that they set financial goals. And the most popular ones are about saving, paying down debt, sticking to a budget. We also got some answers about improving credit scores. But the bad news is we also found that almost a quarter of people give up those goals in less than two weeks. Man, that is crazy. That's a really fast drop off. I feel like folks don't even have time to start making progress on these goals before they give up. But I would venture a bet that a big chunk of that drop off comes from folks who maybe set too big of a goal and then find themselves really quickly overwhelmed. Or maybe they don't know how to craft a goal that's achievable for

their lifestyle and money habits. These two points, setting a goal that's realistic and knowing how to achieve it can really apply to any New Year's resolution from going to the gym to finally taking that ceramics class that you've been wanting to sign up for. Okay, maybe that ceramics class is just my problem. But the point being, keeping a resolution is really hard. It is. And if it were too easy, it wouldn't be fun either. So I think the trick is really to figure out how to stretch ourselves, but in a realistic way. One of my goals this year was to sleep at least six hours a night. It's not easy when you have a newborn, but I think it's still worth aiming for because when you feel well rested,

it's easier to make better decisions in every other part of your life. Right. And I really love that. Getting more sleep is always a good thing to aspire to for sure. And your goal really captures what makes a good resolution. It seems straightforward and attainable, but you really do have to work to achieve it, which brings us back to this episode's question. And let me say, Leslie, you have totally come to the right place. In this episode of NerdWallet's Smart Money Podcast, Kim and I are going to talk through a few tried and true strategies for planning and actually achieving your New Year's money resolution.

Also, a quick note before we dive in, you are listening to season two of the Smart Money Podcast, but we're already planning season three, and we want to hear from you. We have a survey at nerdwad.com slash podcast, so please check that out and let us know what you think. Okay, now to the episode. Sounds good. Okay, Kim, so what is your first piece of advice for Leslie? Well, to start, we recommend being really specific about the goals that you're setting. So to take Leslie's example, instead of saying something like, I want to pay off my debt concrete and specific and specificity is key to achieving

goals. And it also takes advantage of something called the SMART acronym for goal setting. Your goal should be specific, measurable, achievable, realistic, and time bound, aka SMART. So when you're setting your financial goal for 2020, think through each aspect of this acronym and place your goals within it. Another thing that might help is writing down how your goal fits into this acronym on a piece of paper and maybe sticking it to your bathroom mirror or putting together a spreadsheet. So much of achieving a goal is finding a system that works for you and tracking it. The easier you can make this for yourself, the more likely you are to achieve it. I love that. It's relatively easy and it also reduces the chance that you'll

get frustrated and give up before February. Yeah. And again, the SMART acronym could really apply to any goal outside of money, like getting into shape or becoming a master ceramicist. It definitely does, but we can stick with money. Yes. I guess that is more our wheelhouse after all. But another idea for Leslie is to think about breaking her big goal into smaller steps. The concept of paying off debt, like Leslie's goal, can be really overwhelming. Or if you have a goal like saving for retirement, it just feels so big and vague. So let's break that into smaller steps instead.

This is actually one of my favorite tips when it comes to setting better money goals. I remember talking to one woman. She was in her 20s and she really wanted to save for retirement, but it just felt so daunting. She couldn't even see a way to set aside 10% of her pre-tax income into her 401k every month. It was just too much. So she said, okay, I'm going to start with 1% of my pre-tax income and each month I'll try to raise that percentage higher. And then within a few years, she was actually saving 15% of her pre-tax income. That's fantastic. Getting to 15% from 1% is huge.

And it really shows the power of making those small steps. And it makes everything so much more manageable. So like with Leslie's goal for paying off debt, the first step here would be to write out all of her accounts, including balances, interest rates, loan terms, if you have them. And Leslie, you might also want to think about making one of those big floor to ceiling charts that you can fill in as you pay off your debt. Think about what people do for fundraisers and whatnot. And we don't know how much Leslie is paying off. But I think that

if she could write that total at the top, ideally in big fun bubble letters, and fill in sections of the chart as she pays it off, that would be a really nice visual way to represent the progress that she's making. Totally. I also really like the idea of scheduling check-ins with yourself once a quarter or so. Instead of just setting a goal in January and then not really thinking about it until December, I think it's helpful to write a note on your calendar to check in every three months. And then you can ask yourself, do I need to make adjustments? Do I need to pick up my pace? It's a good reminder. Sometimes too, our goals are in coordination with other people. So for example, for me, my savings goals, I'm coordinating with my husband. Every few months, we set a time to check in, review our budget and see if we need to make any adjustments. We set

reminders for things like reviewing our auto insurance coverage to shop around for a new policy or canceling our cable subscription after the promotional period ends. Yeah, totally. And adjustments are really key so that you can keep things realistic and attainable. Again, if you have this unrealistic expectation that you're trying to set for yourself, you're just not going to achieve it and you're going to feel discouraged. But equally important are rewards for your progress. We have to make sure to encourage ourselves by giving ourselves a little pick me up every time we hit a milestone. If you pay off $500 of debt, for example, maybe do something fun that weekend and go see a concert or have a dinner out or sign up for a ceramics class. It might sound a little counterintuitive. You know, you're paying off debt. So why would you

go out and spend more money? But the truth is, we're not robots. There's no promise of tomorrow. I say plan for the future and work towards your goals, but enjoy the present. Go out to. Thank you. Budgeting just, it can't be all about self-denial. I mean, we have to celebrate our successes along the way. I also like giving myself little rewards. So for me, it's something like taking my kids ice skating or going out to dinner. It's one reason I really like the 50-30-20 budget. It's something we talk about a lot at NerdWallet. You spend 50% of your take-home pay on needs

like housing and food, 30% on wants, that's something like a dinner out, and then 20% on savings and any debt payments. So that 50-30-20 budget has some of those wants automatically built in. Yeah, that's a really great point. You have to find ways to make this process easier for yourself and rewards are a great way to do that while keeping yourself encouraged. And Leslie, since you're focused on paying off debt in the new year, I think the debt snowball method would be a great way to begin paying off your debt. With this method, you pay off your smallest debts first and then roll the payment from your smaller debts into your larger ones. I recommend this method because the smaller wins from paying off your smaller accounts

can keep you encouraged and motivated as you continue to pay off your bigger debts, which as you know, is not easy. Yes, the research is interesting here. It has shown that that snowball method can keep people motivated. But there is another approach to just to throw that out there as another option. If you want to minimize the total amount of interest that you're paying, you might want to consider the debt avalanche method. So that's when you start with paying off your highest interest rate debt first. Whichever method you choose, you just have to stick with it. And we do have online calculators at NerdWallet that can help you do that. You can find them on our show notes afterwards at nerdwallet.com slash podcast. Yeah, thank you for mentioning that, Kim, because it is a different approach. And it really comes

down to what might be best for you. The snowball method, I think, is best for those who really want those small wins and know they might have a hard time staying encouraged, where the avalanche method is probably best for folks who have their eye on the long-term goal and are totally fine with some delayed gratification, knowing that they will be spending less money on their debt in the long run. And another thing I think might help Leslie in this process, or anyone who has a goal like this is finding a partner like Kim, how you said you check in with your husband to talk about your spending. So, Leslie, maybe one of your friends or family members also has a kind of tricky New Year's resolution. How about you guys join forces and help each other meet your goals? You don't even have to have the same goal, but if you do weekly check ins with each other, that can keep both of you accountable and on track to meet your goals.

I also really like the idea of using imagery. So it's sort of like the chart that you mentioned earlier. If you're saving for a house, for example, and you want to cut out other expenses, you can make that down payment. You could cut out an image of your dream house, post it somewhere where you see it every day, like your fridge or a wall. And then instead of feeling like you're always saying no to things, no, you can't buy that right now. You are reminding yourself that you're actually saying yes to something bigger. You're saying yes to that dream house. Right. I love that. It feels a lot more positive, as you said. And I do think it's time for vision boards to make a comeback. Definitely will help you meet your goals here. But all this gold talk has me thinking, Kim, do you have any

big money goals for 2020 that you want to share? I do. My big goal relates to my newborn. I recently had my third child with my husband, and we really want to save for his college education. So I want to make a 529 account and then contribute to it every month. It's really been hard to commit to that or to prioritize it because of course, having him has also added to our other expenses. But it's something I really want to make happen in 2020. What about you, Sean? Wow, first of all, I love that goal. Very responsible, very adult of you, Kim, your kids are going to be super appreciative of your forethought and planning one day. My goal is a little bit lofty, but I really, really want to save $10,000 over the course of the year.

Saving has always been a struggle for me in part because I have student loans and I used to live in San Francisco, which was just super expensive and sucked up all of my income. So now that I'm living in Portland, my expenses are less, I can focus on saving. And this 10K number just kind of got into my head. I know it's a little bit arbitrary, but it seems ambitious. And it's also just a nice round number. So I'm planning on doing that for sure. And I really, really do want to take that ceramics class that I've been meaning to sign up for for a long time. You have to make your ceramics class happen in 2020. Yeah. I also love your 10k goal. I think that it sounds really great. Just one idea is you might want to consider breaking it into smaller pieces.

So you could say something like, I want to save $2,500 by the end of March, $5,000 by the end of June, $7,500 by the end of September. Then by the end of the year, you'll have your 10K. Okay, perfect. That does seem a little more manageable, even though those numbers seem slightly scary to me still.

But Leslie, I really hope this helps you meet your goal and gives you some ideas for how to make sure you stick with it. And with that, let's get to our takeaway tips. First, be specific about your money goals and follow the rest of the SMART acronym too. Are your goals measurable, achievable, realistic, and time-bound? If not, make some adjustments. Second, break your goal into smaller steps. That can help keep it from being too overwhelming. Third, schedule quarterly check-ins with yourself so you can make any changes as needed. And finally, reward your progress.

Achieving a money goal should feel good. And if you want any help or ideas, you might want to check out our free budgeting tool or payoff debt calculator on our show notes at nerdwallet.com slash podcast. Sometimes online tools can give you a little extra inspiration. And that is all we have for this episode. Do you have a money question of your own? Turn to the nerds and call us or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Also visit nerdwallet.com

slash podcast for more info on this episode. And remember to subscribe, rate, and review us wherever you're getting this podcast. And here's our brief disclaimer thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.