I’m not one to make a big deal out of New Year’s resolutions. I’ve made and kept one New Year’s resolution, no more New Year’s resolutions.
Most New Year’s resolutions fail within the first month of the new year. Why? They don’t work. If they don’t work why do they take up such a large space in the public consciousness? The stories that you hear about successful people reaching their goals suffer from survivorship bias, you only hear about the sensational successful stories. All the failures are buried, you never read their stories; yet you either have failed to make a change this way in the past or you know someone who has.
What do we do instead of New Year’s resolutions? Here is the process we go through.
We have done this for a few years, so we have the benefit of being able to look back at our goals from the past year. For 2018 we had two financial goals, first was to save 60% of our income, second was to pay off about half of our remaining mortgage by the end of the year. We were able to achieve both goals because we have setup a system of automatic withdrawals from our paychecks and bank accounts. Meeting the goals was almost automatic, all we had to do during the year was to monitor the savings rate and to manually pay the mortgage.
We have the benefit of experience in this area. What if you are just starting out? Start with a retrospective and ask yourself these questions:
- What’s working? (What did we do right? What are we proud of?)
- What’s not working? (What could be improved? What are our biggest opportunities for growth?)
- How can we fix what’s not working? (What specific things can we focus on next time?)
Ask the questions in general or ask each question for different aspects of your life like finances, work, health and fitness, parenting (if you are a parent), or how you use your free time.
Your answers will help you identify areas where things are working well, areas that need improvement, and an idea of how to improve.
The next step we covered in depth last year in our 2018 goal setting article, but we’ll summarize it here.
Outcome goals are based on the the end result, they are often outside your sphere of control. There is nothing you can do by yourself to make it happen. Behavior goals are based on actionable behaviors that you do have control over. You have control of the behavior to put you on the right path towards the outcome that you want.
SMART is an initialism for specific, measurable, achievable, realistic and time bound. A SMART goal will have those attributes. A stretch goal is a something that you won’t really be able to achieve without making a larger change. Stretch goals are meant to be difficult to achieve even if you make a large change.
We use a combination of outcome and behavior goals and SMART and stretch goals. An example from last year of a behavior based SMART goal was to make an extra mortgage principal payment every week that we receive a paycheck in 2018. This supported the outcome goal of being able to pay off the mortgage by the end of 2019.
An outcome based stretch goal should be used to set a long term goal and then you should work backwards to see what it would take to achieve the goal. We did this last year when we explored paying off the mortgage in six months. This forced us to ask a lot of questions: How fast can we pay off the mortgage? Can we do it this year? What would we have to sell? How much less could we spend per month? How would our investments change if we sold now? By asking and answering those questions we decided that we didn’t want to pay off the mortgage by selling other assets.
There is more to it than this, and we’ll cover more about goal setting in the future.
In 2019 we would like to pay off the mortgage by the middle of June, save 65% of our income, and complete the master’s degree. All of these goals are realistic, but require additional work to achieve. We break each goal down into manageable pieces, and this drives our behavior in theses areas.
Avoid the New Year’s resolution trap, decide what is important to you and decide what you are going to prioritize. Break it down into a behavior that you can do on a regular basis. Organize that behavior into your life, automate as much of it as possible.
