The time is fast approaching for the start of the new year and many people are preparing for a New Year and a New You. On the top of the list of things people want to do for the new year is to exercise more, eat healthier, and sort out their finances. So the dusty gym membership card comes out of the drawer, vegetables start appearing next to the soda in the fridge, and people start opening up their excel spread sheets to figure out how to save money. Unfortunately, these changes take a while to become routines, they take even longer to turn into habits, and months before they morph into a lifestyle. So the membership card gets lost, the vegetables start disappearing and the left-over pizza reappears next to the soda, and most tragic of all, the spread sheet gets disorganized and people just get frustrated even having tried budgeting at all. If this is all hitting too close to home, don’t worry, you aren’t alone. According to U.S. News, about 80% of all New Year’s Resolutions fail. It is also not surprising that our top resolutions are to be healthy both physically and financially.
It’s also not so shocking that our top New Year’s resolutions mirror Maslow’s hierarchy of needs and that we all might have wanted to achieve at least one of these resolutions this year (2018). Of course, at the very top of the list is to save money. Why? The first layer of Maslow’s hierarchy deals with things that are basically unchanging demands of the human body. Its not too difficult to imagine having no money and finding it very difficult to acquire food and shelter. So if we were to treat saving money like any other new year’s resolution, we go about it in a similar way. We get motivated, go try a few different programs, lose motivation, and eventually just go back to our old habits. Those who want help staying motivated may also hire a life coach, a trainer, or a financial planner but even then, the difficulty of turning initial motivation into a new lifestyle requires a lot of work. Maybe we are all missing a very important point considering that 80% of all people who attempt drastic life changes seem to fail. Maybe there is a way to decrease the failure rate by coming at the issue from a different light.
Because I am not an expert in the areas of weight loss but instead a financial planner, I can offer some reasons why the failure rate for savings goals are so high. Most people simply want to achieve their goals without understanding the sacrifices that go into achieving those goals. The value of the future goal is hard to measure, but the immediate sacrifice is constant and immediate. This means that when a planner asks the client for their goals, we are really asking them to identify the “dream body” that they want, without going into all the sit ups, miles, and strengthening that comes before. That is probably because the financial services industry is geared to service the “strengthening” needs extremely well when needs are identified and targeted. Want to not eat cat food at 65? Buy our financial products. Want to make sure your significant other isn’t out on the street taking up a collection if you die? Buy some life insurance. The financial planning model is a disciplined routine that you can deploy to become financially stronger. If you have a problem, you can target the area with a healthy dose of “____(Financial Planning)____” and if you need any supplements to your work out you can also purchase “___(Financial Product)__”. You can see that this disciplined and targeted approach can help you get the results as fast as possible. However, it just doesn’t feel very fun.
Ultimately, people want to be physically healthy so they go to the gym (OK, some people also compete but I’m talking about the new years resolution people). But we all know there are other ways for people to remain active other than going to the gym. People can take up a sport, they can pick up an extreme hobby, or they can learn how to dance. The idea is that you don’t have to go out of your way to save money but should instead think about what sort of money lifestyle you would like to live. A close analogy would be to compare an ideal dancer’s body versus a professional sports athlete body. Both are associated with hobbies that can get you in shape, but the end body type is very different if that was the only activity you did. Now ultimately, many people (myself included) fit a hobby in with some time at the gym. I suspect that many people who are professional athletes do the same thing rather than just dedicate time to their sport or the gym.
So how does this relate to financial wellness and what exactly is financial wellness? Remember when I mentioned “what money life style” you want to live and then proceeded to show the differences between hobbies? Well, lets take that as a starting point. What sort of lifestyle do you have and what life style do you want to have? If you don’t really have a strong idea then what you are doing right now is neither right nor wrong. If you want to live a comfortable lifestyle now and continue a similar lifestyle in the future, now is the time to maybe consume a little less and save a little more. If you want to live a much better lifestyle then now you will need to start saving a lot more now and consume a lot less now. But how does this work? Rather than busting out the budgets right away and combing over every line-item, I would say the first step is to just start tracking what you spend. What is it that you are currently doing?
From there, you can get a good sense of the things that are important to you or at least the things that are currently important to you. If you feel there are some things that aren’t important, think hard about making those sacrifices now. If you feel they are important, find ways to maximize that importance by diminishing other not so important things so that you can enjoy the important things later. From here, it may help to do a little bit of conditioning and head to the “gym” portion to strengthen your finances by using financial planning tools to stay on a budget.
The goal is still very much to get yourself financially better in both scenarios. But the differentiation is that you are using financial wellness to motivate and stay on track while you are supplementing your wellness with financial planning as necessary. The idea is to always remember that you are using financial planning in order to live a certain lifestyle. You can dial in your results using planning but you need to know what you are dialing towards before you can begin to dial it in. It is only after you get a better sense of what is important to you that you begin supplementing in some financial routines that get you more financially fit. Keeping this in mind, you might even accomplish that New Years Resolution for 2019 to save more money!