Start the New Year Right

There’s still time to start the New Year off right!

We’re nearly two months into 2004 , long enough so that you’ve quietly scrapped that ambitious list of New Year’s resolutions, but perhaps not so long that you don’t regret it. Here are our Sensible suggestions for financial New Year’s resolution success (even though it’s nearly March!):

• Pick one resolution.
• Make a simple plan to accomplish it.
• Get someone else to do the work. Use psychological judo to make it stick.

Sensible Financial has thought a bit about why we all forget our New Year’s resolutions so quickly, so often, and about how you could do better. Here is our analysis (based on introspection, and not particularly fact-based, for a change). First, why we don’t usually do so well:

• A New Year’s resolution is frequently about making a major change in our lives, and change (especially major change) is hard. We often make multiple resolutions, so now we’re talking major changes. So, reason number one is – we set too many goals.
• Quite often, New Year’s resolutions are just goals – I’m going to lose weight, I’m going to get more exercise, I’ll spend more time with my family. There are no action steps, no "implementation plan" as the (former) consultant in me would say. Reason number two – we don’t plan to accomplish our goals.
• Even if there is a plan, we rarely recognize how much time and effort will be required to carry it out. For example, getting more exercise requires spending time to get it. But, we usually don’t figure out where that time will come from. Reason three - we don’t assign enough resources to carry out the plan (if there is one).

So, how can you structure your financial resolutions to ensure success? Here is Sensible Financial’s simple prescription (and three sample resolutions and action plans):

• Make one, important, simple resolution (simple means easy to state, easy to measure, but not necessarily easy to do). For example:

Easy to state, easy to measure vs. Hard to measure (how do you know you’ve done it?) Save a certain amount of money in a year not Spend less on restaurant meals or fancy clothes Pay off a certain amount of credit card debt not Reduce your reliance on credit cards Set a balanced asset allocation not Get your portfolio in order

• Make a straightforward plan to accomplish your goal:

Goal Plan Save a certain amount of money in a year Save 1/12th of your target each month Pay off a certain amount of credit card debt Pay off 1/12th of the beginning of year balance each month Set a balanced asset allocation - Select the allocation target - Do all of the transactions at once

• Be sure you have enough resources – get someone else to do the hard work for you, then let your natural inertia ensure your progress:

Goal Get someone else to do it / use your inertia Save a certain amount of money in a year Set up an automatic draft from your checking account to your savings account or investment account Don’t change the automatic draft (the good news – if it’s hard to set it up, it will be hard to change). Don’t allow yourself to draw on that account (if it’s a retirement account, it may actually be expensive to draw on it – encouraging you to stick to your resolution) Pay off a certain amount of credit card debt Set up an automatic draft from your checking account to your credit card for the monthly amount Don’t change it (if it’s hard to set it up, it will be hard to change it). Pay for your new purchases each month If you have trouble keeping your credit card in your pocket, cut it up or leave it in a safe location at home. Set a balanced asset allocation Buy an inexpensive asset allocation fund OR Set the allocation for new investments in your 401(k), or 403(b) and leave it alone OR Hire an investment advisory firm, and have them set and maintain your allocation.

We don’t guarantee success if you follow these rules, but we do believe it’s a lot more likely. As always, if you have questions or want help, pick up the phone and give us a call at (617) 444-8677, or drop us an e-mail at info@sensiblefinancial.com. We’re here when you need us.