Why a Financial Plan Should Make Your 2021 Resolution List
* This article was originally published on Dec. 26, 2018. It has been updated for 2020.
‘Tis the season for New Year’s resolutions! Well, almost. As we head deeper into the holiday season and last couple of weeks of this year — with the advantage of hindsight — it’s clear that 2020 has brought a lot our way, and many of us are ready to move forward. As 2020 inevitably comes to an end, what are your plans for a better and brighter 2021?
According to a recent survey, 51% of Americans plan to make a money resolution, and the top finance-related resolutions are to:
While the number-one resolution for those making financial resolutions for 2021 is to reduce debt, 46% of respondents want to increase their credit scores and 45% want to increase their savings in 2021.
Will you hop on the bandwagon and put a money goal on your resolution list? (We wouldn’t blame you.) If improving your financial life is your goal, one of the best places to begin is with a financial plan.
If you followed our holiday survival guide, you already know that your financial plan guides your budget all year round and that a budget can help you stick to your plan. You may even have already established your budget for 2021 but, as you know, that’s a year-round necessity — not a resolution.
Financial planning benefits
There’s more to a resolution than feeling good about setting your sights high on a lofty goal to make improvements in your life in the coming year. And if you’ve chosen to improve your finances as a goal, a financial plan could …
Be your guide to a prosperous year — and beyond. You’re not just looking back at the previous year and making plans for the next like you do when budgeting. You’re making a concrete lifelong plan to reach your short- and long-term goals.
Help you avoid mistakes and keep you on track to meeting the goals you included in your budget.
Assist you in staying goal-oriented and future-focused so you don’t spend the money you’ll need to reach life goals on something you want today — or later on.
Even with financial planning benefits in mind, the titular question remains: Why should a plan make your resolution list? Simple: You deserve it. As the adage goes, “You only live once,” so why not make it your best life? A financial plan can help you do just that.
Keys to keeping your resolve
Once you’ve committed to your money resolution and have made it a part of your financial plan, how can you make it work when so many resolutions fizzle out early? By turning yours into a S.M.A.R.T. goal:
Specific — First and foremost, make your resolution specific. Saying that you plan on improving your financial life is really a non-starter because it’s way too vague. So choose a certain area, like improving your credit score or donating more to charity.
Measurable — Next, your plan has to be measurable. The where and the how — or, even more specifically, how much — are extremely important to long-term success. Saying that you plan on not putting your $5-per-day cup of coffee on your credit card so you can keep your credit usage below 30% or that you’ll put $25 per week into your “charitable giving fund” instead is getting somewhere.
Attainable — Provide yourself an additional level of motivation by sharing your specific resolution with a few close friends or family members, especially your best friends or significant other. If you’re married with combined finances, it’s an absolute requirement to begin with. The right loved ones will likely be able to lend you good words of encouragement along the way. If you slip up, hopefully they’ll be able to help you with ideas on how you can get back on track.
Realistic — It’s common sense, but remember that you can’t spend less or save more than your means will allow. Don’t start by imagining that you’re going to make several thousands of dollars of difference per month in your charitable giving fund. Keep your planning numbers realistically achievable and you’ll have a much greater chance for success as well as additional motivation for future changes.
Time-oriented — Don’t forget to give yourself a deadline! While this might sound a bit silly since you’ll only have one year to accomplish your 2021 resolution, you can and should set milestones along the way. Consider a monthly review of your credit card statements to check for charged coffees and to review your credit use. Or a regular check-in on that charitable giving fund to make sure you haven’t skipped a week. This way if, say, you do swipe your card at the coffee shop or forget to set up your $25 per week automatic transfer and fall behind, you have the chance to check in and make a plan to catch up or reevaluate.
If you are trying to accomplish a drastic change or find yourself struggling to get started, remember that there are professionals out there who can help you identify how you can do it — and help hold you accountable. Depending on your needs, reach out to a professional financial advisor, like a CFP® pro. After all, they work on this stuff year round.
Plus, stay tuned to our blog over the next couple of weeks. We’ll be sharing a year-end reflection next week where we’ll highlight the financial industry happenings that we found especially impactful. The following week, we look forward to bringing you our very own year in review where we’ll share what we, as individuals, are grateful for in 2020 and what we’re most looking forward to in 2021.
Wishing you happy planning, a happy holiday season, and a happy New Year!
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