How to Make Your Financial Diet Work
Resolutions are a New Year’s tradition. And traditionally the most popular resolutions are to lose weight, quit smoking, exercise more and to improve personal relationships, according to John C. Norcross, professor of psychology at the University of Scranton and an expert in the field.
But thanks to the recession and rising concern about job losses and economic woes, more people than ever before are resolving to clean up their personal finances.
Indeed, according to a just-completed Gallup poll, financial resolutions rank second only to the all-time favorite--losing weight--in 1992.
A full 15% of those planning to make resolutions said their “most important” goal related to getting control of their finances, making more money or saving more money, according to the national poll of more than 1,000 adults. Another 16% of the resolvers want to lose weight, while 14% want to stop smoking. After that it drops to 5% with work-related resolutions and 5% who believe that they should exercise more. About 3% believe that they should become “better people.” (The poll was conducted on behalf of Intuit, a Menlo Park, Calif., company that makes and markets financial software programs.)
Resolutions, whether financial or personal, are important, Norcross said. In the main, they promote “life-enhancing behavior,” which will help individuals live longer, be healthier and happier in the long run, he said.
“Personal finance may not be do or die, but it certainly can have an effect on whether you end up on the street or not,” he added.
Yet most people break their New Year’s resolutions within a matter of weeks. Only about one in every six of those who were surveyed said they were able to make their resolutions permanent. And 45% broke last year’s resolutions within eight weeks of making them, according to the Gallup poll.
The problem, according to Norcross, who has done several studies of what makes resolvers succeed or fail, is that many believe that willpower alone will hold them.
In fact, Norcross said, there are a handful of steps that have nothing to do with willpower that will greatly increase the chances of keeping your resolutions.
The steps:
Set realistic goals: If you are a two-pack-a-day smoker, you probably won’t be able to quit cold turkey. But you might be able to cut down and slowly reduce your need to smoke.
Likewise, a person who has never before saved is not likely to start setting aside 20% of his income. If saving is your goal, start with a budget and figure out how much you can realistically set aside. One way to formulate a budget is to go back through your check register and figure out exactly how much you spend each month and on what. Then figure out what luxuries can be cut and use the savings to pay off your bills, save and invest.
Set up an environment conductive to success: Talk to your friends and relatives and explain that you will need to spend less on birthday and holiday presents this year. And ask them to help you stay on your financial diet. If you are a compulsive shopper, stay out of the malls. And get yourself off mail order mailing lists.
Substitute healthy habits for bad ones: It’s hard to change behavior when you’ve developed a habit. You may always eat snacks, smoke or shop when you’re faced with a lot of stress or even during particular times of the day or month.
Then when you’ve resolved to change that behavior, you are left with a gap of time where you know you’ll always be tempted. Consequently, it helps to substitute one new habit for every old habit you break, Norcross said. It’s best, when possible, to make the new habit one that’s incompatible with the old.
Self-reward: Give yourself a treat when you do well, whether that’s a verbal compliment or a night out on the town. (One woman persuaded her husband to sign a contract that said that every week she didn’t smoke, he had to clean the bathrooms, Norcross said. She’s a nonsmoker today.)
Don’t equate a slip with a fall: Many people give up on resolutions the first time they regress. But in fact, a one-time slip does not mean failure. Indeed, in a two-year study of 200 individuals, Norcross found that those who were successful at keeping their resolutions slipped an average of 14 times. But each time, they determined that the slip was nothing more than a temporary setback, and they continued to keep their resolutions.
