• Wed. Apr 24th, 2024

I’m a Financial Planner: 6 Mistakes You’re Making on Your 2024 Money Resolutions

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Although the new year is only a week old, many people’s financial resolutions are already running out of steam — whether they realize it or not.

No matter how well-intentioned, most end-of-year money vows will collapse in a few short months, with many never making it to February.

GOBankingRates spoke with Harvard-trained behavioral economist and financial planner Keisha Blair, the award-winning international bestselling author of the “Holistic Wealth” book series, founder of the Institute on Holistic Wealth and host of the Holistic Wealth podcast.

Credited with coining the term “holistic wealth” and recognized as the movement’s pioneer, Blair sees misguided resolutions crumble every January — but she also sees some come to fruition.

Here are the most common mistakes that foil failed resolutions, with suggestions on tweaking them for success.

Unrealistic Goal Setting

It’s easy to dream big when you’re motivated to change and eager to turn over a new leaf, but aiming too high is the No. 1 resolution killer.

“People often set overly ambitious financial goals, setting themselves up for potential disappointment and discouragement,” said Blair.

  • The fix: Set ambitious but attainable objectives and break them down into smaller, achievable steps.

“By setting realistic milestones, individuals can celebrate progress along the way, fostering motivation and sustained effort,” said Blair.

Lack of Specificity

If you vowed to save more money, increase your earnings or invest this year, you should expect to fall flat.

“Vague resolutions make it challenging to track progress and may result in a lack of direction,” said Blair.

  • The fix: Define specific, measurable and time-bound objectives.

“Establishing a clear roadmap for achieving financial milestones provides a framework for success and facilitates effective monitoring,” said Blair.

Ignoring Behavioral Biases

Resolutions that disregard the impact of cognitive biases on your decision-making processes are resolutions that probably won’t make it to spring.

“Acknowledge biases and actively work to counteract them,” said Blair.

Here’s a look at the top five resolution-killing behavioral biases and how to account for them in your plans.

Loss Aversion

Loss aversion refers to the tendency to prefer avoiding losses rather than acquiring equivalent gains.

“In financial resolutions, this bias can lead people to shy away from necessary risks or investments due to the fear of potential losses,” said Blair.

  • The fix: Recognize the influence of loss aversion and strive to make decisions based on a balanced assessment of potential gains and losses.

“Understanding that some level of risk may be necessary for financial growth is crucial,” said Blair.

Overconfidence Bias

Overconfidence bias involves people overestimating their abilities, knowledge or the accuracy of their predictions.

“In the context of financial resolutions, this bias might lead people to take on more risk than they can handle or underestimate the time and effort required to reach their goals,” said Blair.

  • The fix: Actively seek external input and feedback.

“Consult financial professionals, gather diverse perspectives and remain open to reassessing your assumptions,” said Blair. “This helps counteract overconfidence and ensures a more realistic and grounded approach to financial planning.”

Present Bias

Present bias involves giving stronger weight to immediate rewards and instant gratification over future benefits.

“This bias can hinder the ability to save or invest for long-term financial goals,” said Blair.

  • The fix: Create systems that prioritize future rewards.

“This could involve setting up automated savings plans or investment contributions,” said Blair. “By minimizing the effort required for future-oriented actions, individuals can overcome present bias and stay committed to their financial resolutions.”

Anchoring

Anchoring occurs when people rely too heavily on information they encounter when first making decisions.

“In financial resolutions, this could manifest as fixating on initial expectations or market conditions,” said Blair.

For example, you’d be shortchanging your 2024 resolutions to base them on 2023’s elevated interest rates or strong stock gains, which could change at any moment.

  • The fix: Regularly reassess and update financial goals based on current information. Avoid being overly influenced by initial benchmarks or expectations.

“Flexibility in adjusting financial plans helps mitigate the impact of anchoring bias,” said Blair.

Status Quo Bias

Status quo bias is the preference for the current state of affairs over change, even if the change could be beneficial.

“This bias can hinder individuals from making necessary adjustments to their financial plans,” said Blair.

  • The fix: Embrace change as an essential part of financial growth.

“Regularly review and adjust financial resolutions in response to changing circumstances or opportunities,” said Blair. “This proactive approach helps overcome the inertia associated with status quo bias.”

Neglecting Emotional Factors

It’s crucial to leave emotions out of nearly all financial decisions, from buying a car to picking an index fund — but failing to take an honest inventory of your feelings can be even more self-destructive.

“Ignoring the emotional aspects tied to financial decisions can lead to impulsive or irrational choices,” said Blair.

  • The fix: Reflect on emotional triggers related to your financial habits.

“Establishing healthy coping mechanisms and building a strong support system can provide emotional resilience, contributing to more stable financial decision-making,” said Blair.

Lack of Monitoring and Feedback

Resolutions on autopilot are resolutions that are doomed to crash and burn.

“Failing to regularly assess and adjust financial resolutions may result in stagnation or ineffective strategies,” said Blair.

  • The fix: Implement a consistent review process to evaluate your progress.

“Regularly monitoring financial goals allows for timely adjustments and ensures that resolutions remain aligned with changing circumstances,” said Blair.

Underestimating External Influences

Resolutions don’t exist in a vacuum, yet many people make them as if plans are immune to outside forces.

“Disregarding the impact of external factors on financial goals can lead to unforeseen challenges,” said Blair.

  • The fix: Anticipate and plan for unexpected changes.

“Building flexibility into resolutions enables individuals to adapt to external influences, increasing the resilience of their financial plans,” said Blair.

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