7 Money Resolutions That Actually Set You Up for Failure (And What To Do Instead)
Written by
Yaël Bizouati-Kennedy
Edited by
Amber Barkley
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As the new year approaches, many Americans are thinking about financial resolutions. And while deciding to adopt better financial habits, cut spending or increase saving are all healthy steps, some resolutions — and some ways to go about them — can end up setting you up for failure.
You’ve heard about money challenges and fads — but like everything trend-related, resolutions based on these might fizzle in no time.
Consumer finance expert Tanya Peterson, vice president of brand at Achieve, said that two frequent culprits are making resolutions that are too big or making too many.
“It’s common for people to want to get [their] finances in a better place, so they decide to build an emergency fund, pay off credit card debt and create a budget — often along with non-financial resolutions like losing weight,” she said.
Peterson added that while all of these things are worthy resolutions, they all require changing habits and learning new ones.
“It’s virtually impossible to tackle all at once and be successful. It’s far better to choose one, make an actual plan you can follow and stick with it. If all is going well after a few months, you can always add another resolution,” she added.
The ‘No Spend’ Challenge
This challenge, particularly popular in January, encourages participants to avoid all non-essential spending. And while this can provide a short-term boost to your savings, it’s often followed by a rebound effect, said Taylor Kovar, CFP, CEO and founder of Kovar Wealth Management.
“Come February, the pent-up desire to spend can lead to splurging, negating the benefits of the challenge,” he said.
Instead, he recommended focusing on creating a realistic and sustainable budget that includes room for occasional treats. “This approach fosters a healthier relationship with money, emphasizing conscious spending rather than total abstinence,” added Kovar.
Extreme Budgeting
This involves cutting expenses drastically — and while it might seem like a fast track to savings, it’s often unsustainable and can lead to burnout and frustration.
“Adopt a balanced budgeting technique, like the 50/30/20 rule, which allocates income to needs, wants and savings,” said Kovar. “This method ensures financial responsibilities are met while still allowing for enjoyment and savings.”
Using Round-Up Apps
Another resolution is to turn to financial apps that round up purchases or automatically transfer small amounts to savings.
Again, while these might be helpful, relying solely on them can create a false sense of financial progress and neglect larger financial planning, according to Kovar.
Instead, he said to use these apps as a supplement to a more comprehensive savings strategy. Regularly contribute to a savings account and consider investments that align with your long-term financial goals.
The Cash-Only Resolution
This resolution aims at curbing spending by not using credit cards. However, this method can be impractical in the digital age and doesn’t address the root causes of overspending, said Kovar.
Instead, he suggested developing a deeper understanding of your spending triggers and working on addressing them.
“Utilize budgeting tools and digital tracking to maintain awareness of your spending habits,” he said.
Generic Resolutions Like ‘Save More Money’ or ‘Spend Less’
These lack specificity and measurability, making them easy to abandon.
Instead, “set SMART — Specific, Measurable, Achievable, Relevant, Time-bound — financial goals. For example, save $200 per month toward an emergency fund for the next year,” said Kovar.
Going Too Fast
One money resolution that sets people up for failure is trying to totally overhaul financial habits overnight.
“Everyone gets gung ho setting resolutions in January, but that enthusiasm can become overwhelming, and your motivation may fizzle come February,” said Scott Lieberman, founder of Touchdown Money.
Instead, Lieberman said to focus on two money goals you want to gradually change.
“Tiny gains sustained matter the most — don’t overwhelm your willpower!” he added. “Maybe that means regularly checking in on your spending and determining if you’re on track, every week, not to overspend. This is something that is manageable and doable — you can always increase your goals throughout the year.”
Overly Ambitious Resolutions
Setting goals and making resolutions requires level-setting with oneself, and many people set themselves up for failure before even getting started by setting unrealistic or overly ambitious resolutions, according to Kelly Lannan, senior vice president of emerging customers at Fidelity Investments.
“If a resolution is too challenging for someone or requires drastic lifestyle changes, individuals may feel overwhelmed and give up entirely,” said Lannan.
A quick and easy way to overcome this is by setting specific, achievable and realistic resolutions that can be reached with small milestones, she said. And by having small, manageable goals, people can feel the real progress they’re making against those goals, which helps to build up momentum over time.
“The success of a New Year’s resolution, or any trend for that matter, depends on a combination of factors, including realistic goal setting, careful planning, motivation, support and a flexible mindset. Goals and resolutions should be approached with balance in mind so they can be sustainable for long-term success,” she added.
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