January is a popular month for setting new financial goals for the year. But, as many of us have learned over the years, we’re likely only setting ourselves up for failure during the beginning of the year.
It’s not that we don’t see the need to improve our spending habits, be more consistent with savings, or change our money mindsets. We just underestimate the power of deeply-ingrained habit — and inertia.
There’s no shortage of tips for reaching fitness, financial, and other life goals, but — lingering on that idea of power — here are a few more you might not have encountered before.
Power Tip #1: Harness the Power of Loss Aversion
Loss aversion is the principle that we humans are often motivated (or discouraged) by the threat of negative outcomes. If positive motivation isn’t working, try negative motivation. Poor financial choices don’t always have an immediate negative impact, but you can create one. For example, you could bet on your ability to follow through with the necessary steps to reach a financial goal.
Losing money — especially to something you dislike or someone you rival — can be powerfully motivating. A site called StickK uses this concept to help people achieve many types of personal goals. When users fail to meet a goal, they forfeit a certain amount to either a “friend or foe” individual or a cause they strongly oppose. If this isn’t your style, find other ways to manipulate the power of loss aversion to motivate your financial goals.
Power Tip #2: Bring in the Power of Accountability
Accountability to ourselves isn’t as motivating as accountability to others — whether a friend, sibling or member of a group you belong to. If you don’t have a personal network, use fitness and financial apps to draw on a more public social network. It’s amazing how much motivation can spring from “competing” with strangers trying to achieve the same goals!
Power Tip #3: Take Willpower Out of the Equation
We often think willpower (or motivation) is integral to achieving financial goals. If we fail, we must not have enough of it. Some willpower is necessary for taking the first steps and gaining momentum toward our goals, but its tendency to fluctuate (much like our emotions) means we can’t count on it to drive us to completion.
With other disciplines, such as healthy eating or exercising, willpower is more of a constant battle until new habits are formed. With finances, it’s easier to eliminate willpower because you can draw on the help of technology — through automation.
Automatic savings and payments aren’t exactly set-it-and-forget-it categories because you should still check in on your finances, but they only require one dose of willpower to get them going. Try it. You’ll be surprised how much more you can achieve by just having an automated schedule.
Power Tip #4: Focus on the Power of One Goal
Another reason we often fail to achieve our financial goals for the new year is that they’re goals (plural), versus a goal (singular). Pick the biggest area of opportunity, the easiest one to achieve, or the one you feel most excited about — whichever strategy works best for you. Having a singular focus for the year is less stressful and daunting while allowing you to dedicate more of your resources and attention to perfecting it rather than just barely hitting the mark.
There are different kinds of power, and they play into the success or failure of our financial goals in surprising ways.
Do you have any more “power” tips you’d add to this list?
{ read the comments below or add one }
I agree with #4 the most. Focusing on one goal reduces the chance of getting overwhelmed. Then, after celebrating the accomplishment of one goal, move on to another.
That’s how I chip away at my goals. When too many things pile up or I’m taking on a big personal or professional project, I have to break it down and work on one element at a time.
I believe that what you are saying is that we should focus on one goal per time. With this, we can bring the power of concentration to bear. Nevertheless, achieving one goal may lead to setting another one within a year. Thanks for the nuggets
I find that focusing on one specific goal is the most beneficial. The ability to multi-task is a great quality that a lot of us possess, but when it comes to setting goals, it can actually be a hindrance. By setting multiple goals, you aren’t focusing all your energy on to that one specific goal because you are spreading your time among various other tasks. This often leads to none of the goals actually getting accomplished! By focusing on one that is really important to you, you can give all your attention towards that task and increase your odds of actually accomplishing that goal.
Great post!
Knowing about and powering past your aversion to loss is such a key element of successful personal finance management.
I wrote a post called “Don’t Let Fear Prevent You From Winning” (linked to my name here). It focuses on knowing historical stock market trends and taking on risk in order to accomplish your financial goals.
Although you’re right, it’s also important to not allow your desire to overcome your risk aversion to lead you into making stupid decisions. It’s a fine line between “taking a risk” and “being foolish”!