How to Set (and Conquer) Your 2015 Money Goals
It's time to set your big financial goals for the year and make a plan for achieving them. Despite the fact that an Allianz Life survey of more than 1,000 people in November found that getting in shape is a bigger priority than improving finances for most people, 4 in 10 said they aimed to manage their money better in 2015. About a quarter of respondents said they were more likely to get help from a financial professional in the coming year. Paying off credit card debt, building up emergency savings and increasing retirement savings were also among the common goals cited.
The relative health of the economy compared to a year ago seems to have alleviated some of the pressure Americans feel to set financial goals. A recent survey of more than 2,000 adults by Fidelity found a decline in interest in setting money-related financial resolutions for the new year. Just 31 percent of respondents said they were making a financial resolution, compared to 43 percent in 2014. The most popular financial goals included saving more (55 percent), paying off debt (20 percent) and spending less (17 percent).
The Fidelity survey also found a correlation between expressing a financial goal and improving one's financial life: About half of those who made a money resolution last year said they are now "better off financially," compared to just 38 percent of those who didn't set one.
According to Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, one of the biggest barriers to meeting financial goals is that people just don't know how to get started. In Charles Schwab's Fall Financial Pulse survey of 1,466 adults ages 25 to 65, more than half said they "don't feel they are on top of their finances," and 27 percent said they "don't know where to start and need more education or information." In addition, 15 percent said they didn't want to deal with their finances because it's "too overwhelming."
If you fall into that category, then you might also want to consider the research of Christine Whelan, a faculty associate in the Department of Consumer Science at the University of Wisconsin--Madison and self-improvement expert. She developed two self-improvement programs for AARP's Life Reimagined website that help people prioritize their goals and define the next steps for achieving them.
Her research has also found the importance of not just setting a resolution, but making sure the goals you set resonate with your values and priorities, and not outside influences. Meeting those goals also requires high levels of self-control, which gets stronger with practice, she says.
Here are some suggestions from academic research on how to go about achieving your 2015 money goals:
1. Be flexible. Julia Belyavsky Bayuk, an assistant professor in the Department of Business Administration at the University of Delaware, asked college students to save money and told half of them to form a specific plan for how they were going to save money. Then, the college students were offered candy for 75 cents each. The students with a specific savings plan in place were more likely to splurge on the candy purchases compared with those without a plan. (Interestingly, students with savings plans who were put into an "abstract" state of mind first, by being asked questions about why they save money instead of how, were more likely to resist the purchase.)
"The takeaway is that planning can limit you. It's important to remind yourself, 'What is my goal?'" Bayuk says, who co-authored the study published in the Journal of Consumer Research in 2010.
In other words, forming a plan is not necessarily helpful, because in real life, plans often don't work out. It rains. A child needs to stay home from school. You are offered a piece of chocolate cake. For Bayuk, these findings also provide personal comfort: "I always wanted to be a planner. I always buy the calendars, and try to use Outlook, but it never works. I never stick to it. Now I've accepted this fact. I don't form plans," she says.
2. Visualize your goal. "It's very important to visualize your goal. You need to know what you're working toward," Bayuk says. In fact, clearly keeping the goal in mind by posting it where you see it every day could also keep your motivation at the forefront of your mind and help you think more abstractly about reaching the goal, which Bayuk's research has shown to be helpful.
3. Get motivated by a purpose bigger than yourself. "If thinking of the world and others around you makes you think more broadly and leads you to be more open-minded, then that could help," Bayuk says. Focusing on how your children would benefit from a college degree without a huge amount of student loan debt, for example, could make it easier to skip a pricey restaurant meal and put that money into their 529 account instead..
4. Be specific when describing your goal. The acronym SMART, which stands for specific, measurable, attainable, relevant and time-limited, has been used for more than 20 years to help people set and meet goals. In general, Bayuk says applying the acronym can be useful, but warns people against being too specific about their plans, since her research suggests remaining open-minded can be a better approach.
"You want to be as specific as possible if you're sure you'll have the opportunity to execute that specific plan," she says. But in reality, specific plans often get sabotaged. "You might say, 'If I wake up at 8 a.m., I'll go to the gym." But what if you don't get up at 8 a.m.? If the situation doesn't happen, that's when having a plan is hurtful," she explains. At the same time, having a specific plan might prevent you from taking advantage of unexpected opportunities that pop up, such as getting home from work early and using that time to go to the gym.
5. Dream big. Research suggests that you should dream big, but not too big, Bayuk says. When people set goals that are too small, they achieve them easily and are finished. At the same time, when people set goals that are overly ambitious, they tend to give up before reaching them. Setting goals somewhere in the middle, where they are difficult to achieve but not impossible, is the best approach.
