As we all try to put 2020 in our rearview mirror and begin the annual ritual of trying to keep New Year’s resolutions, from exercising more, to eating balanced meals, and making time for hobbies and recreation; Wharton School expert Olivia S. Mitchell, director of the Boettner Center for Pensions and Retirement Research, suggests including improving finances in those resolutions.
Despite the global pandemic, a divisive presidential election, and months of national racial unrest, Mitchell still endorses the most common financial resolutions for the New Year.
“Most Americans hope to save more money, pay off debt, and spend less,” she says. “The beginning of the year is an ideal time to review and track your cash flow.”
Since the COVID-19 pandemic hit, delineating financial priorities has become more important than ever, says Mitchell. For most, the start of the year is an ideal time to review what’s coming in and what’s going out. She says the idea is to figure out where you stand now, how much money is available to help achieve your resolutions, and then you can create an actionable plan to fulfill them.
Many people make resolutions on New Year’s Day. But no matter what your resolutions are, the key isn’t when you make the list, it’s sticking to it, Mitchell says.
Here, she outlines five resolutions that can help increase financial fitness.
Make financial management easy
Move all bills that you can to auto-pay, including the bill for your own retirement. Call your human resources office or login to your retirement plan website and bump up your pension contributions. Be sure to contribute enough to get your full employer match. If you can, set up auto-escalation so that every year, the retirement plan contribution rises automatically. As mother used to say, “If you don’t see it, you won’t spend it.”
Keep track of your spending so you know where your money goes
There are smartphone apps, or you can carry around a little notebook to write down what you spend cash on. Credit card receipts are also useful for tracking expenses. Once you know where your money goes, you can better manage your spending.
Plan to reward yourself when you do something difficult
My Wharton colleague Professor Katherine Milkman discovered that people who only let themselves read their favorite trashy novels at the gym are much more likely to get their exercise. Dina Pomeranz, who teaches economics at the University of Zurich, has shown us how to make spending fun, teaming up with a saving buddy whom you text each time you don’t spend. It can also help to set up a low-cost online savings account with a fun title such as “My Reward Fund,” and put your change in it—spending it will be doubly enjoyable.
Invest in your health
While this isn’t exactly a financial resolution, good health will pay you back many times over, in later life. You’ll feel better and live better without as many medical bills, which can become a major source of financial stress, particularly in later life.
Invest in financial literacy
Wharton has a free website for educators, students, and just plain folks, with more than 400 lessons on personal finance, economics, entrepreneurship, accounting and marketing. A free financial knowledge quiz is a nice way to take stock of what you need to learn, and some fun free videos can help you make better financial decisions.