Long on Resolutions, Short on Results? How to Actually Reach Your Money Goals

If you really want your personal finance resolutions to be successful - save money, get out of debt or spend less this year - learn how to tweak your resolution and actually reach your money goals.
By Maryalene LaPonsie

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It's that time of year when the promise of a fresh start has folks making their New Year's resolutions, and cleaning up finances is an annual top priority for many.

When it comes to popular resolutions, the most common money goals include spending less, saving more and getting out of debt. A survey of 3,000 people by MoneyRates.com shows that people seem to be evenly split on which to put first. Here's how respondents ranked their preferred financial goals:

  • Save more - 20.8%
  • Spend less - 19.9%
  • Reduce debt - 18.8%

Unfortunately, though many fervently make these resolutions every year, a lot of people never reach the goal.

Ever wonder why?

It could be their approach is wrong. Despite best intentions, the reason some of these resolutions aren't kept may be that people don't get how certain financial principles work or know which financial tools would work most effectively for them.

For each of the following resolutions, there are financial principles to understand and financial tools that could help. This article explores the important elements of each resolution, how to tweak it and create an action plan for your success in 2021.

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How to Tweak Your Money Resolutions and Get Results

Sometimes a small change can make a world of difference. When it comes to achieving financial goals, the trick is in knowing what to do differently.

Often, the answer presents as a paradox - where something appears to be absurd or self-contradictory but actually expresses a possible truth. Once mastered, however, these truths can become the guiding light that drives financial success.

The overarching theme to notice here is not that resolutions are pointless. In fact, quite the opposite is true. Resolutions are good to make, but especially if you remain curious about personal finance and committed to fine-tuning your approach to reaching your financial goals.

1. "I Will Save More Money."

Many people head into the New Year with multiple financial goals, and 60.7% of survey respondents told MoneyRates.com that they intend to save more money during the next 12 months.

This seems to be a more pressing priority as people near retirement age, with 70% of those age 55 to 64 making this resolution. Only 54% of those 18 to 24 years of age felt the same pressure, however.

Financial principle to understand: Compounding

Unfortunately, by the time you reach your 50s, it becomes significantly harder to save a large sum of money. But the power of compounding has the potential to turn even relatively modest amounts of money into substantial sums - if you start early.

If the younger generation would prioritize savings now - even though they may not be able to save a lot at first - the principle of compounding would do the hard work for them.

How much money you can earn due to compounding depends on…

  1. ... how long you leave your funds untouched on deposit
  2. ... how often interest is compounded
  3. ... and the interest rate being offered on your account.

Financial tool: Savings account, CD or money market account

But it's not just about understanding the principle of compounding. It's about how you execute on the principle that makes it effective.

In this case, the interest rate and how interest is compounded are two elements you control by shopping for the best savings account rates. To the extent you accept a low interest rate on a savings account at a big bank, you undermine your efforts to save more money. Selecting a financial tool that compounds interest daily makes a difference too.

What to tweak: How you shop for the best savings account

MoneyRates conducts a quarterly survey that identifies the banks that not only offer the best interest rates, but do so consistently - day in and day out, all year long. Opening a savings account, CD or money market account at any of these banks can go a long way to ensuring that you are using an effective financial tool to help you reach the goal.

Popular strategies for how to save more money

As far as how people plan to achieve their savings goal, those with this resolution have the following strategies in mind:

  • Create a budget with a specific savings amount - 38.4%
  • Set up automatic deposits into savings - 12.2%
  • Save and deposit spare change - 8.3%
  • Obtain a second job or income stream - 8%
  • Sell belongings - 2.6%
  • Participate in an automatic savings plan/round-up program - 2.4%

While it's concerning that 28.1% report they will be doing none of the above to save money, most people are on the right track here.

Having a budget is the single most important step you can take to boost your savings. That's not only because it creates a specific savings goal but also because it ensures you don't spend more than you make.

It should go without saying, but there's no way to save if you have more money going out than coming in each month.

2. "I Will Get Out of Debt."

When it comes to debt, 54.4% of survey respondents say they hope to reduce how much they owe in the year to come. People with this goal plan to use a variety of strategies:

  • Minimize discretionary spending - 27.9%
  • Increase monthly payments to retire debt - 25.1%
  • Improve credit score to lower interest rates - 6.7%
  • Launch a debt snowball to eliminate debt - 5.8%
  • Open a balance transfer credit card - 4%
  • Set up an emergency fund to avoid new debt - 3%

It makes sense that people would focus on minimizing spending and increasing debt payments. However, they could be missing a few key elements if they want to be successful.

Financial principle to understand: Cash management

One of the most effective strategies to get out of debt was the least popular among survey participants, indicating that people aren't clear how cash management should work.

Cash management is not just about controlling discretionary spending to get out of debt, after all. It's also about preparing your finances to cover emergencies - the kind of unpredictable events that often cause people to incur debt that derails their financial goals.

Even if you're in debt now, an emergency fund should be a top priority.

Without money in savings, people may turn to credit cards and loans to pay for these unexpected or emergency expenses, and it's hard to pay down balances in any meaningful way if you're having to add charges.

What to tweak: How many accounts you have

High yield savings accounts can be a good place to keep your emergency fund. But you might also consider adding a money market account or CD to your emergency cash management lineup.

By law, banks are required to limit the number of withdrawals from a savings account per month to six. So having a second savings account, money market account or even a no-penalty CD could help you respond to larger emergencies more effectively.

Financial tool to use: The balance transfer credit card or 0% APR

Next, focus on lowering interest rates. Minimum payments sent to high-interest credit cards may just barely cover new interest charges, and your money will go farther by using a balance transfer credit card or 0% APR card along with a debt snowball.

What is a debt snowball?

A debt snowball is a popular planning method that typically lines up debts in order from either the smallest balance or highest interest rate.

Once the plan is created, people make minimum payments on everything except the debt at the top of the list. That debt payment gets boosted with any extra money available each month. After it's paid off, the amount used to pay that debt is rolled into the payment for the next item on the list.

You can speed up your snowball by looking at ways to consolidate debts to a lower interest rate.

What to tweak: Your credit score

Finally, make it part of your resolution to check your credit report each year. Mistakes can affect your credit score and increase the interest you pay.

Every person is entitled to one free report every 12 months from each of the major credit bureaus. Reports may be requested at annualcreditreport.com.

3. "I Will Save for Retirement."

This wasn't even on the radar for a lot of people - and that may be because it's more difficult to achieve this financial goal and, frankly, most people don't understand how to plan for retirement.

But don't let that stop you.

If you want to save for retirement, you'll likely need to spend less on other expenses first.

Fortunately, spending less is on many people's radar. MoneyRates.com found 57.5% of survey respondents say they plan to spend less in 2021. Cutting expenses not only frees up money for retirement but also supports the goals of saving more and getting out of debt. There are a lot of ways personal finance concepts and skills intersect with each other.

Here's how people told MoneyRates.com they plan to spend less:

  • Create and stick to a budget - 40.1%
  • Reduce cable/entertainment costs - 8.2%
  • Consolidate debt - 7%
  • Reduce housing costs - 6.3%
  • Reduce transportation costs - 4.5%
  • Pay down student loans - 1.8%

Financial principle to understand: Building financial skills

Creating a budget is one of the top strategies to spend less since it outlines exactly where your money is going and where cuts can be made. You can use this excess money to funnel extra payments to your 401(k), IRA or other retirement account.

However, to achieve this resolution, you need to be familiar with retirement planning concepts. That's something a third of people don't know much about, according to a separate MoneyRates.com survey.

"Less than 10% of the respondents that don't feel knowledgeable about retirement planning have consulted a financial professional."

You should take a bow for exploring how to reach your financial goals - but then get to work expanding your skill sets and new knowledge to become financially independent.

If you need help learning this aspect of your financial life, consider working with a financial advisor to craft a savings strategy that allows you to live the lifestyle you want in retirement. It may be a big task, but all the skills that you learned about saving money and getting out of debt build upon each other. They're not put to rest simply because you reach that goal; they find supporting roles as you acquire more knowledge.

Action Plan for Financial Success in 2021

Making a money resolution for the New Year is the first step toward improving your family finances. And, hopefully, you've found the sections above helpful in exploring how to achieve those resolutions.

Now it's time to pull all the pieces together into an action plan that can help you achieve any and all of these basic money goals. Here are seven steps to put into place:

  1. Create your budget
  2. Build your emergency fund
  3. Open a savings account
  4. Start a debt snowball
  5. Get a balance transfer credit card or 0% APR credit card
  6. Talk to a financial advisor
  7. Check in throughout the year

Create your budget

It all begins with a spending plan. We have a separate article all about how to create a budget and stick to it. With your budget in place, you can quickly see if your spending lines up with your priorities, which expenses can be trimmed and how much you'll have left over each month.

Build your emergency fund

The general rule of thumb is to keep enough in savings to pay for 3-6 months of expenses. However, that can be an overwhelming amount if you don't have any savings right now and are living paycheck to paycheck.

Instead, start small.

Try to build up a $400 buffer in your checking account to cover unexpected expenses. Then, work up to having $1,000 in a linked savings account that can be used for overdrafts if needed.

Finally, open a separate high-yield savings account where you can begin accumulating the money needed to cover the recommended 3-6 months' worth of expenses.

Open a savings account

If you don't already have a savings account, make it a priority for the New Year. For convenience, it's good to have a savings account at the same bank or credit union where you have a checking account. However, open a second high-yield savings account for your larger emergency fund.

Putting this cash in a separate, high-yield account will allow it to earn more interest while also making it less likely you'll dip into the cash for non-emergency reasons.

Start a debt snowball

If you are paying off debt, you can do it more quickly with a debt snowball.

Order your debts by balance or interest rate. Start with the debt with the lowest balance or the highest interest rate and concentrate all your extra money on paying down that debt.

Once it has been eliminated, move on to the next debt on your list.

Get a balance transfer credit card or 0% APR credit card

Your debt snowball will go faster if you have low-interest credit card debt. Fortunately, there are a number of low-interest balance transfer offers and zero APR credit cards available today. Use these to save money on your credit card balances as you become debt free.

Talk to a financial advisor

Don't go it alone. A financial advisor may be able to help with money management as well as suggest retirement savings strategies.

If you don't think you have enough cash to warrant talking to a traditional financial advisor, you could use an online service to start investing.

Check in throughout the year. People are often enthusiastic about their resolutions at the start of the year but then lose steam. To minimize this risk, select in advance certain times of the year to review your budget and determine your progress toward your goal. This gives you a chance to make corrections before you get too far off track.

Achieving your financial resolutions is simply a matter of good cash management, and the process doesn't have to be overwhelming if you break it down into smaller steps.

Of course, we all need some extra help now and again. You can use online calculators or online robo-advisors for general advice. However, for personalized recommendations, talk to a financial advisor who can help you map out a big picture plan for your money now and in retirement.

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