There is a saying attributed to WL Batemen: if you keep on doing what you have always done, you will keep on getting what you’ve always got. It is succinct and needs no explanation – and well worth remembering as we start to think about the time of year and, in particular, the forthcoming season of resolution.
Many of us try to use a new year to make the changes that we know we need to make. Intuitively a new year seems like a good time to make a new life and start afresh to change the way that we do things (although there really is no reason to wait for a new year if you do not want to!)
I doubt that many resolutions stick, whether made at New Year or not. We resolve to do things, but a little later find ourselves in just the same position as we were. This is apparent in a lot of different things: our health, our weight, our jobs … and, of course, our finances.
Like most change, change to our finances comes hard. We usually know what we need to do, but simply cannot endure the necessary change for long. Whether the change required is increasing your income, achieving a budget surplus or changing your investment strategy, financial change is hard.
Unless we get very, very lucky all change to our circumstances comes from change to ourselves (Lotto should not be relied on). Therefore, we have to find some ways to make the necessary changes easier so that they stick.
The first thing to do is to find your motivation. Ideally, this would be something attractive that you are drawn towards (the deposit for a house or enough money for retirement) rather than something negative (if we stay on the current track we will be in the doss house in a few months). However, whether negative or positive, you have to know why you are making the change and hold on to that idea through thick and thin.
You should set a goal that properly reflects what you are trying to achieve (we will have $60,000 for a house deposit by the end of 2015 or we will have $20,000 p.a. income from our investments for retirement by the end of the year). Such a goal (especially if committed to writing) is very powerful psychologically as you have worked out exactly what success looks like and when you want to achieve it.
Second, think about the social context of the resolutions and changes that you are planning to make. When it comes to finance, it is critical that you enrol your partner/spouse in to what you are trying to do. You cannot expect to fight well on two fronts, one being a fight to hold to the resolution that you have made and the other to fight with the family.
Although you need to enlist the support of key family members, be very careful who else you tell. If you tell people that you will retire in five years or that you have decided to save for a house deposit, you may find doubters and knockers who undermine your resolve.
Third, change concerns your habits (i.e. what you routinely do). This may mean that you have to stop the style and type of investing that you have habitually done over the years – many people going into retirement find the change of investment strategy that is required very difficult, while others find the sale of poor investments impossible to face up to.
Habits die hard and old habits die hardest. Pick on just one habit and change that before you move on to the next habit which needs to change.
You are unlikely to be able to hold to your resolutions on the basis of willpower alone: research shows that we each only have a limited amount of willpower and we should only spend it at one place at a time. Therefore, you have to make the changes habitual and easy: join KiwiSaver if you want retirement savings, adopt the pay yourself first approach if you are saving for a house deposit or increase the mortgage payments if you want to reduce debt faster.
Do whatever you have to so that the changed behaviour is a routine that no longer requires willpower each time that you do it – a lot of financial success comes from knowing exactly what you want and resolving to make the necessary changes to get it just one at a time.
Martin Hawes is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com. This article is of a general nature and is not personalised financial advice.