Are you looking to improve your financial situation in the upcoming year? You aren't alone! At any given time, millions of Americans want to make smarter money decisions—and many of them choose the new year as the time to start setting new financial goals.

But resolutions often go awry … and sometimes it's because of the resolutions themselves.

The Tea

New Year's resolutions are, in general, a good thing. Everyone should try to improve themselves. But it's one thing to want to be better—and another to actually draw up a smart plan for doing so.

Said Wipro founder Azim Premji: "One must have strategies to execute dreams."

To be blunt: Not every last New Year's resolution is a gem. In fact, one of the biggest impediments to fulfilling a New Year's resolution is the resolution itself! It's very possible to make poor resolutions that end up making you frustrated or confused, or worse, putting you even farther behind the financial 8-ball.

The Take

Today, we're going to tell you what not to do as you put together your wealth-minded New Year's resolutions—consider it a list of "No U-Turn" and "Do Not Enter" signs for your financial roadmap.

By avoiding these types of financial New Year's resolutions (and heeding our suggested resolutions instead), you should be able to put together a list of measurable, achievable goals that should help you improve your financial situation … and your money smarts.

#1: Don't Make Resolutions to Fix Things That You Don't Control

New Year's resolutions should be dependent on your actions and abilities alone. Nothing more.

Don't … make goals that rely on other people, or revolve around things happening in the future that you can't guarantee will happen. The only thing worse than not living up to a New Year's resolution is doing so despite doing everything you possibly could. 

For example, don't make a New Year's resolution to get a raise at your job. Even if you worked extra hours, came up with innovative ideas, and proved yourself to be indispensable, none of that would guarantee that your boss would see your worth.

Do … make a resolution to improve your job situation, which you can do in several ways. You can resolve to ask for a raise (even if you're not guaranteed to get it). You can resolve to search for a better-paying job. You could even resolve to ask for more hours at work, or resolve to get a side hustle and earn more that way.

It's a subtle difference, but an important one from a psychological aspect.

#2: Don't Make Vague Resolutions

New Year's resolutions should be measurable.

Don't … resolve to make general financial improvements. Having a clear resolution focuses your efforts, makes it easier to draw a path toward completion, and allows you to track your progress, which can act as its own form of encouragement. Vague goals can be ineffective even when accomplished, and there's not much you can do to keep yourself accountable.

For instance, don't make a New Year's resolution to simply "save more for retirement." Technically, even one saved dollar more would be more, but is saving a dollar more a meaningful change that will materially improve your retirement nest egg?

Do … make a resolution to save a specific amount.

For instance, make a New Year's resolution to increase your 401(k) retirement contributions from 2% to 4% (if your budget allows for it, of course). This is an easy resolution to achieve—you can simply set your new contribution amount at the start of the year—and it's one that could result in thousands of dollars of additional retirement savings in a few decades.

WealthUp Tip: Before you create your New Year's resolutions, review and update your budget.

#3: Don't Make Unrealistic Resolutions

"I'm going to save a trillion dollars this year!" Good luck with that.

Don't … make ridiculous resolutions you can never live up to. If you choose too lofty a goal, you'll quickly get behind, which will make you feel defeated and unmotivated. Not only will you fail to meet your goal, but you'll probably fail to make any real progress toward better financial habits period. (And in some cases, meeting an overly ambitious goal might actually be harmful!)

For example, don't make a goal to save 90% of your income. I'm sure there are a few people who might be able to tackle this if they had someone else to tackle all their essential needs, or if they made a ridiculously high amount of money. But most Americans couldn't come close to meeting this goal without significantly falling behind on necessary expenses such as mortgage/rent and utilities.

Do … make realistic resolutions. Not only does steadily progressing toward your New Year's goals make you more likely to achieve them—it also gives you the confidence and momentum to make and tackle future resolutions.

For instance, you might resolve to tuck away $1,200 into your savings this year. That's a precise goal with a set deadline—and better still, it's one you can break down into smaller chunks. ($100 a month, to be exact.)

WealthUp Tip: Saving more money is a popular financial goal. Automated savings apps can make it easier AND accelerate your savings.

#4: Don't Make Hasty Resolutions

Anything worth doing is worth spending a few minutes of careful thought and planning on.

Don't … plop down on your couch with a notepad and colorful gel pen, scribble out a few important-sounding goals, and call it a day. While little goals are good for quick wins, which help build confidence and motivation, major goals require a certain amount of planning and research. 

For instance, don't resolve to buy a house this year unless your finances are in good shape, you've already started conducting research on the homebuying process, and you've already started to examine the real estate market in the area you want to live. If you don't, you could be in for a rude awakening. For instance, J.R. George, Senior Vice President of Trustco Bank, says it's common for people to apply for mortgages, unaware they have low credit scores that need to be improved first.

Do … your research and make sure you're fully prepared before setting massive financial goals.

If you've already saved up for a significant down payment, know some homebuying basics, and have gotten a feel for what properties around you cost, then yes, feel free to make a 2024 New Year's resolution to buy a house.

WealthUp Tip: We all know poor credit is a financial roadblock, but a lack of credit history can be as well.

#5: Don't (Necessarily) Prioritize Paying Off Debt

One of the most popular New Year's resolutions is to pay down debt. And well it should be—debt is a drag on your finances. That said …

Don't … resolve to pay off all of your debt indiscriminately. In general, you should try not to carry debt for very long, because interest makes that debt more expensive over time. But if you can make your money grow at a rate that's higher than the debt you owe, it might actually make more sense to not pay off that debt (right away).

For instance, if you have $10,000 in debt—$7,500 in student loans at a 4% interest rate, and $2,500 in credit-card debt at a 20% interest rate—don't resolve to pay off all your debt. For one, doing so in a year might be very unrealistic. But also, there's a better way of allocating your money. Very few investments will net you 20% a year, and no investment is guaranteed to do so, so knocking out that $2,500 in 20% credit card debt should absolutely be a priority.

But stock-market returns average between 8% and 10% per year, depending on the study. So if you have a choice between putting money to work earning 8% to 10%, or paying off 4% debt, you're actually better off earning that 8% to 10%. 

Do … resolve to pay off your debt tactically. Attack high-interest debt first, then start weighing whether you're better off paying down low-interest debt or investing that money, depending on how low those interest rates are, and how high your investing return expectations are.

(WealthUp Tip: Not every financial decision has to be made by X's and O's. For some people, a debt-free slate would put them in a better emotional place—even if it means not maximizing their money's potential. And there are worse financial situations to be in than being debt-free!)

Hannah, Riley & Kyle

WealthUp (Young and the Invested is now WealthUp)

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