Resolutions are often hard to stick to, especially when it comes to money. But if you want to make improvements to your finances, there are different ways you can approach it that might be more likely to last.
A bit like Marmite, New Year’s resolutions can divide opinions. Some people swear by them, some don’t see the point and others fall somewhere in the middle – making resolutions but keeping to them with varying levels of success. One YouGov survey found that only a quarter of people kept all their resolutions, although almost half said they’d managed to keep some of them.
When it comes to money, sticking to your resolutions can be even harder. The impact of the Covid-19 pandemic has made more of us think about our finances, but it’s also shown just how unpredictable life can be. Making a resolution to save more each month is one thing but keeping it might not be possible if you suddenly have less money coming in, for instance if lose your job, get a pay cut or aren’t able to work.
Find areas to focus on
Having said that, the start of a New Year is a good time to think about your finances and work out what you want to achieve. So, rather than thinking about resolutions that you could either keep or not, you could draw up a list of two or three areas where you’d like to make a difference to your finances. It’s more likely that you’ll stick to something if you make it easy for yourself, so identifying any barriers and working out how to overcome them can make a real difference.
Set specific goals
One of the most popular resolutions, alongside improving health and fitness, is to save more money. For some people, having that goal or resolution may be enough. But for others, it may be too vague. If you fall into that category, then identifying what you’re saving for can be a good first step. It may be a future holiday, a financial buffer so you have cash for unexpected expenses, or money for home improvements. For others, the goal might be to become debt free. In that case, it’s good to be specific about how much debt you want to have paid off, and by when.
Knowing what you want to achieve with your finances is one thing, but actually doing it is something else. Psychologists say that you can increase your chances of success by overcoming barriers. So, if you decide you want to save for a holiday and you’d need £900 in six months’ time, you’ll need to save £150 a month. Rather than waiting to see if you have £150 left over at the end of the month, it may be better to set up a regular transfer (such as a standing order) to a savings account when you get paid. That way you’re not tempted to spend the money.
If you’re the kind of person who might dip into your savings once you know you have them, you could consider a ‘notice’ savings account, where you have to tell the bank before you want to take the money out (typically 30 or 60 days beforehand).
Every little helps
If you owe thousands of pounds on your credit card, you may feel that you’ll never be debt free. But paying off a little bit extra can make a big difference, especially if you currently only pay the minimum amount required every month. For example, if you owed £1,000 on a credit card charging a typical interest rate of 19% and made the minimum payments, you wouldn’t be debt free for 18 years!
Minimum payment levels vary between credit card providers, but are typically around 2.5% of your balance, or £5, if that’s more. In this example, you’d start off paying £25 a month, and that would fall as you pay off your balance. If you could afford to double your payments to £50 a month, you’d be debt free in less than three years. Of course, paying off your credit card debt in full each month is by far the best option because you won’t be charged any interest – whereas only paying the minimum could get quite expensive.
If you don’t have debts (apart from your mortgage) and you can save £50 a month, you’d have £600 after a year, plus any interest. That’s not enough to live off if you lose your job, but it could be the difference between being able to afford, for example, repairs to your car, or worrying about how you can pay for it.
Don’t focus on failure
If you miss a month’s savings or you can’t pay off your debts as quickly as you’d like, it can be easy to feel like you won’t achieve your goals. But for most of us, it’s the direction of travel that’s important rather than the speed. Remind yourself why you set the goals in the first place and focus on how you’ll feel once you’ve reached them.
The Money Advice Service has a range of tools and calculators to help you set and reach a savings goal or draw up a budget, while UK Finance has a calculator to help you work out how quickly you can pay off credit card debt. If you’re struggling with your debts, speak to a debt advice charity, such as StepChange or National Debtline, who may be able to help.