Save and Invest

Why 'save more' is a terrible New Year's resolution


Nearly 70% of Americans are making a money-related New Year's resolution, and more than half of those making one are prioritizing saving more, according to Fidelity Investments' 2020 New Year Financial Resolutions study.

As well-meaning as we may be, around half of us failed to keep the financial resolutions we made this year, Fidelity found. And that's no wonder: The goals we're setting for ourselves are too vague to keep us on track.

"Change doesn't come about because people want change so badly. It comes about because they plan it," Donald Edmondson, associate professor at Columbia University and principal investigator for the National Institute of Health's Science of Behavior Change, told CNBC Make It.

Here's how to make a plan so you can actually accomplish three of the most popular financial resolutions for 2020.

The goal: "Save more money"

"Save more money" was the top resolution cited in Fidelity's study, with 53% of respondents saying it's their top priority for 2020.

How to improve it: That goal won't work for many people, because it needs to be more clearly defined, according to research into goal setting and achievement. That research suggests setting SMART goals, or ones that have the following attributes:

  • Specific: What you will accomplish and how. Make the goal as specific as possible: "Save $4,000 over 12 months," not "save more money."
  • Measurable: The data/metrics you will use to evaluate how and if you're accomplishing your goal.
  • Achievable: The goal needs to make sense and be attainable with your skills and abilities.
  • Relevant: The goal should be important to you.
  • Timely: Have a set time frame for accomplishing your goal.

Instead of making a resolution to "save more money," outline specifically how you want to accomplish saving more money. Commit to saving 5% more from each paycheck, or increase your retirement savings contributions from 6% of your salary to 10%, as one option.

Another tip: Focus on improving your personal savings rate, as this article suggests. Calculate how much of your post-tax income you saved this year, and then aim to increase it by an attainable percentage in the new year.

The goal: "Pay down debt"

Just over half of respondents want to pay down their debt, and 68% say they're setting goals to live a debt-free life.

How to improve it: If this is your resolution, take time over the next week to make a specific, concrete action plan for tackling your debt. One of the best methods for paying it down, according to research from the Harvard Business Review, is the so-called snowball method.

Using this strategy, you'll make at least the minimum payments on each of your debts — credit card, student loans, etc. — and then put any extra money you have toward the debt with the smallest balance, regardless of interest rate or other considerations, so that you pay it off more quickly and have one fewer bill to worry about.

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This method has a psychological benefit: Paying off one debt will keep you motivated to then aggressively pay off your next-highest balance and so on.

Another popular method for debt repayment is the avalanche method, where you focus on paying off the debt with the highest interest rate first. Mathematically, this method is more financially beneficial than the snowball method, because you'll save more on interest payments. But you might lose steam if you're not seeing quick results.

There's also a happy medium: The "blizzard" method. Write your debts down in order by balance. Then, pay off the lowest balance debt, per the snowball method. Once you have that motivation, switch to the avalanche method so that you're saving on interest.

Regardless of which strategy you choose, keep track of your progress on something tangible, like a paper tracker on your refrigerator, or a notepad next to your bed. Seeing the progression each day in an easily accessible place will keep you inspired.

The goal: "Spend less"

More than a third (35%) of respondents surveyed by Fidelity want to "spend less" in 2020.

How to improve it: To actually achieve this, you'll need to know how much you typically spend each month in major categories: housing, food, transportation, clothing, entertainment, etc. Comb through past credit card or bank statements to get a sense of this, or plug in your past few months of purchases to an app like Mint. Then, decide how much less you want to spend in each category, and track your spending throughout each month.

Another concrete tactic for spending less: Institute "no spend" rules for yourself. If there are certain things you spend too much money on — makeup, books, games — set strict rules for yourself for a manageable amount of time, say a month or season. Here are tips for how to succeed on a No Spend journey.

Throughout the year, reflect on how you're progressing, and make changes as needed. To be successful, you want to make sure your goals are attainable, but also that they make sense with the life you want to lead.

Don't miss: 6 simple ways you can actually improve your finances in 1 year

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