What you should do instead of making New Year’s resolutions

Want to make a change in the year ahead? Finance expert Lisa Montgomery explains why changes of habit last longer than most New Year's resolutions.

Resolutions are a funny thing. We charge into the new year with all guns blazing, making grandiose plans to quit smoking, drop 10 kilos and learn a new language.

But the problem with these so-called "resolutions" is that for the most part, we rarely commit to them. By the time Easter rolls around, they've been packed away and forgotten, only to be dusted off and re-examined the following year. And so the pattern repeats itself.

Financial resolutions are not immune to burnout either. Our lofty aspirations to start a new business, pay off the mortgage or get out of debt can quickly fizzle out without a feasible plan of attack.

So how do you make these resolutions stick? The answer is simple: start off small. Swap the bigger picture perspective for the everyday one. Replace your annual financial "resolutions" with changes of habit. So where should you begin?

Start by asking yourself "why?"

Most of us have downtime over Christmas and the New Year period. Use this time to reflect on why you want to instigate financial change in the first place. Perhaps you were a little too frivolous with your credit card or other spending over Christmas – and your next payment is looming. You might be entering a new phase of life, where shifting priorities dictate an adjustment to cash flow management. Growing families, new jobs and retirement are all common catalysts for financial change.

Recognising the motivating factors behind your "resolutions" or changes gives them purpose. Without it, you'll end up with half-hearted, meaningless goals that are quickly abandoned.

Set one or two achievable targets

The biggest mistake you can make is trying to change too many things at once. Instead, pick a couple of key areas you want to improve throughout the year and make sure they're achievable.

For instance, you might decide you want to pay off your mortgage quicker. While this probably won't happen over the course of a year, there are smaller steps you can take to speed up the process. You might start by paying above the minimum repayment amount each month or by refinancing to a more competitive lender. This is a great example of where you can make tangible progress on your bigger picture goals by changing your everyday habits.

Practise discipline

This old chestnut (or lack of it) has seen many would-be savers dip into their piggy banks the moment temptation strikes. If you're serious about reaching your savings goals, you'll need to be disciplined. But this doesn't come naturally to everyone.

If you're prone to the occasional spending frenzy, put some barriers in place to prevent it. Speak to your payroll department and arrange for a portion of your wage to be paid into a separate account so you don't even notice it's gone. You can also try locking some funds away in a term deposit or another account that you can't access to prevent them from being frittered away. In this case, a set-and-forget mentality can work in your favour.

Regularly check in with yourself

Financial goals are often a marathon, not a sprint. It's important to look at your progress every three months to make sure you're still on track. This also helps to clarify that the goals you've set are still important to you. Our lives are fast-paced and ever-evolving, so it's only natural that our goals might change direction as well.

Not ready to commit?

If you're not ready to stick to new habits, the most important thing you can do is review your financial products at the start of each year. If your credit card is linked to a loyalty scheme, is it still delivering the best value on the market? Is your home loan still providing enough flexibility? Are you still satisfied with your health insurance policy?

If the answer to any of these questions is no, then it's time to jump on the phone and call your provider. Even just a 5- or 10-minute chat can end up delivering enormous value in the long run.

Remember it's the smaller steps that can be the most life-changing. You don't need to undergo a complete financial overhaul to make a difference. When it comes to resolutions – or changes of habit – slow and steady will always win the race.

Lisa Montgomery is one of Australia's most respected consumer finance experts and commentators. She is the former CEO of Resi Home Loans and Head of Consumer Advocacy at Wizard Home Loans.

Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.

• Interested in being a contributor for Finder X?

Image: Getty Images, supplied