Why financial New Year's resolutions are a bad idea

Now that we are six weeks into 2023, I find myself thinking about all those New Year’s resolutions millions of us made at the start of the year.

Are you sticking to your goals or has reality set in and you find yourself already regretting those promises to overhaul your budget, save more, pay off debt, start your investment journey or set up an emergency fund?

Unfortunately, studies over the years show that New Year’s resolutions are a tough ask for many, despite their good intentions.

One study by health fitness app Strava in 2020 found that most people give up on their resolutions on January 19, which it named “Quitters Day”.

Don’t get me wrong: I’m not calling anybody a quitter for not following through on their New Year’s resolutions.

While I don’t see the point in joining the global chorus of New Year’s resolutions, particularly when it comes to personal finances, I do understand why people want to turn over a new leaf when a New Year rolls around.

But setting lofty goals without careful planning can set you up for failure, particularly when it comes to money.

For a person to simply declare, “I’m going to save more money this year!” when the clock strikes midnight on January 1 is easier said than done.

Which leads me to ask: how do you plan to do that?

Short of going through your finances with a fine-tooth comb to figure out your incomings and outgoings, and finding ways to cut back on expenses, where will that money to save more come from?

Will you start a side-hustle or cut back on your daily coffee from Starbucks, for instance? What about giving up taxis in favour of public transport or cancelling forgotten subscriptions?

Oscar Wilde, the late Irish poet and playwright, made a good point when he wrote: “Good resolutions … are simply cheques that men draw on a bank where they have no account.”

It can be quite demoralising to start a new year on a losing note, but there are steps you can take to start tackling your financial goals.

That said, I think it is also important to keep your financial goals out of the New Year’s resolution bucket.

Why? Because it doesn’t matter what time of the year you do this. Why not start that financially empowering journey now rather than waiting for January 1?

Begin with thinking about what it is you want to achieve with your money — are you looking for financial security with an emergency fund (typically three to six months of expenses) or do you want to be debt-free and save for a mortgage?

Watch: Understand your finances

Or perhaps you want to start investing, save for your children’s futures or join the Financial Independence, Retire Early (Fire) movement and retire at 40.

Whatever it is that you want to achieve, you have to first drill down on what you earn versus what you spend.

Financial experts recommend keeping track of all your outgoings for at least a month to give you an idea of how much you are spending — or overspending, for that matter.

I would rate this as one of the hardest tasks to undertake when you decide to take control of your finances, as it requires honesty and a deep look at how much money you are wasting every month.

However, there are plenty of expense tracking apps that can help you with this, as well as keep you motivated to stay on track.

The results can be shocking for some but, once done, they do provide a realistic guide to set financial goals and how much you have left over each month to save, invest or pay off debts.

I intentionally don’t make New Year’s resolutions, as the last thing we need in our lives is more stress and that awful sense of failure — more so as we continue to deal with the aftereffects of the Covid-19 pandemic, rising interest rates globally and a higher cost of living.

Instead, I set myself goals and small challenges, such as a no-spend day or week, in which you cut out luxuries and pay only for the essentials such as rent, groceries and utilities.

The more you learn about your spending and what you really need in life, the more it can lead to an incredible feeling of financial empowerment and confidence as you begin to see the results of your hard work.

For me, that moment came when I set up my daughter’s first investment portfolio in December.

As we discussed her risk profile and whether or not she wanted to include Bitcoin in her portfolio (typical Gen Z, she said no), I realised this was a conversation I wish I had with my parents at her age.

We are two months in and staying on track — and already her portfolio is in positive territory. But she also understands that this is a long-term commitment and realises the importance of ignoring the daily highs and lows of stock markets.

For us, it is one small step at a time — and perhaps a positive, achievable way for others to approach their new financial journeys this year.