Three crucial steps to making new year resolutions work

I am all for New Year’s Resolutions. Cynics scoff that January 1st is just another day in an arbitrary human calendar, but they’d be better off resolving to be more open-minded in the New Year.

True, there is evidence that goals can be counter-productive, whether you’re trying to lose weight or make a million.

But that fact is I’ve never met a successful person who doesn’t set use goal-setting as part of their motivational toolkit.

In my opinion, the key is what goals you choose, and why you choose them.

Many people – and many businesses – set ambitious and arbitrary goals that run contrary to what they’ve achieved to date. To me, this seems more wishful thinking than motivating or even helpful, whether you’re trying to halve your weight or double your income.

Better to set smaller, more manageable targets in areas where you already have some momentum.

If you do want to achieve something altogether new, then you should start slow. Resolving to attend a piano lesson once a week might be a good goal. Learning to play the piano isn’t.

Here are three tips to help you make resolutions that deliver what you promise.

1. Make resolutions you really care about

Don’t draw up a laundry list of tweaks that you believe would lead to some perfect life. It won’t, and you’ll beat yourself up when it doesn’t.

You’re trying to change yourself with these resolutions – which is the hardest thing a person can do. Treat the challenge with the respect it deserves.

I suggest you pick at most three goals that would make the biggest positive impact on your life.

Financially, you might vow to do one big thing, such as:

• Get out of debt.

• Ensure you’re on track for a well-planned retirement.

• Get over your fear of investing by starting with small regular contributions.

• Create a second income stream that delivers £50 a month. (£500 a month can come later!)

The ideal goal excites you when you think about achieving it, but feels a little daunting, which is exactly why you have backed away from it before.

You want to get somewhere worth reaching, but a good goal is in sight, not up in the sky.

2. Be specific: Aim for the goal, but focus on the journey

A powerful goal is important, but the key to achieving it is the choices and steps you make every day.

If you declare “My goal is to lose weight and save money by eating out less” even as you eat a meal at your favourite Indian restaurant – fashioning your third Naan bread into a mini-snowplough to mop up the last of the chicken korma – and then you celebrate your decision by returning to the same place at the weekend, then let’s face it, you’re not serious and you’ll fail.

Don’t drop dead before you start. Translate your goals into small, actionable steps that you can carry out each day, and then take those steps to achieve your aim.

For example, you might break down the goal of ensuring you’re on-track for retirement as follows:

1. Work out your net worth.
2. In a spreadsheet or investing tool, divide that net worth into different asset classes.
3. Factor in any regular savings you already make.
4. Calculate how your investments could grow with typical returns by retirement.
5. Estimate the annual income the final sum could generate (4% of the total is a good benchmark).
6. Estimate what state benefits you can also expect.
7. Add (5) and (6) together to get your retirement income estimate.
8. If it’s not enough, figure out how much more you need to save.

Many people will find (6)+(7) is less than a seaside cottage and all the cream scones they can eat, which is where a vague “retire well with a pension” goal becomes an action plan to do something like:

1. Find an extra £250 a month, either by earning more or spending less.
2. Open an index tracker fund in a tax-exempt account (a pension or an ISA).
3. Contribute the extra £250 a month to that tracker fund until you retire (maybe rebalancing towards bonds in the later years).
4. Resolve to keep buying every month, regardless of bear markets.

The point is to translate your goal into doable actions.

3. Little setbacks are better than big failures

Human beings seem wedded to failure.

We all slip-up. I work fewer hours than I plan to, get out of the city less than I vow to, and I still haven’t learned to sail or scuba dive. If robots ever take over the world, they’ll do it by following their program, rather than immediately heading to the pub.

Since you’re going to have setbacks – spending too much one month, or eating an extra sausage – you have to get into the mindset that small failures are okay, provided the bigger mission is still on track.

If you don’t do this, your goal will blow up at the first misstep, and it could take some of you with it.

The scared and self-defeating part of yourself would just love to get you off the hook by throwing in the towel. Don’t let it. The fear of failure looms large for most of us, but it clearly isn’t all-powerful. If it were, we’d never achieve anything.

Calmly accept you’re human. Look squarely at your setback for what it was – a small skirmish in a battle that you’ve vowed to win.

Give a nod to your human frailties, and then re-focus on your goals and succeed!

This post was updated in January 2013 with new links, and new goals in mind! Do you have any financial New Year resolutions? Share them in the comments below.

(Image by: Clairity)