It’s that time of year, friends.
Resolution time.
It’s like Hammer Time, but more intimidating in almost every way, unless you are literally on a dance floor right now. Even then, does anyone really expect dance perfection when Hammer Time comes on?
I didn’t think so.
I’ve always loved resolution time, because I love the feeling of starting fresh. Whether it’s a new Moleskine notebook or a new year, there’s something about a blank slate that is unbelievably appealing to me. Based on the number of people I saw posting about their resolutions on Facebook yesterday, I’m not alone.
But here’s the thing.
To reach a set money goal, you can’t just rely on the goal. You need to establish habits to go along with it.
I’ve been deep into thinking about habits lately, ever since finishing Better than Before, by Gretchen Rubin, and I realized how many of my financial – and other – goals hinge on good habits.
With good habits, achieving my goals is – well, not easy easy, but definitely easier.
Without them? Well, the goal looks really good on a piece of paper sitting beside my desk, but that’s about it.
Even though I’m thinking so much about habits lately, I know all too well that a habit without a goal – especially a habit you’re trying to start – can quickly become a huge source of stress.
Let’s take “saving more money.”
It’s a money goal I’ve heard a lot of people mention in the past few days, and it’s a great thing to work towards.
Yeah, no surprises there, I’m a fan of saving more money.
It’s also one I’ve tackled both ways – with a goal but no habits, and with habits but no goals.
Spoiler alert – neither of them went they way I wanted them to.
Setting Money Goals Without Habits
When I was in university, I wanted to “be good with money.”
Let me just say, that’s not even a good goal. It is literally none of the things that make a goal SMART – it’s not specific, measurable, or time bound. Because my goal was none of those things, there’s no way of knowing if it was achievable or realistic, either.
PS. Never heard about SMART goals? Here’s a primer on setting SMART goals as it applies to personal finance, from the Simple Dollar.
That said, I still had it in the back of my mind.
I wanted to be good with money, and knew I should be saving money, but I never did in any meaningful way.
It’s not that I didn’t have money to save either, which is the worst part. I was lucky enough to secure some pretty great scholarships, I had a lot of family support, and I worked part-time throughout my entire degree. I was never a starving student, which like, thanks mom and scholarship organizations. That was so nice.
But all that money I made working? And by keeping my grades up?
I never thought anything of buying $5 lattes and food court lunches while at my part-time job, or taking advantage of the very generous discounts I got on clothing. I thought nothing of paying $15 to park at the mall each and every shift I worked.
Those were the habits that I let form, instead of taking the time to build habits that would actually help me “be better with money,” like tracking my spending or setting up automatic savings contributions.
Building Money Habits Without Goals
Then I graduated from university, and made a totally unconscious decision to take the exact opposite approach.
I went straight to the bank, opened up a TFSA, RRSP and my now-infamous “short term savings account.” I also set up automatic contributions to each of those accounts, so that 10% of my after-tax income went directly into each one.
“But Desirae,” you’re probably thinking, “that sounds like exactly what my parents are always telling me to do.”
Yes.
Except for one thing.
I was miserable about it.
I mean, ok, yes, it worked out really well, and I am in no way suggesting I regret doing any of those things. But I had gone through the motions and built the habits everyone told me I should have in order to be on top of my finances, without ever trying to set money goals for my future.
I never calculated what I actually needed to be saving for retirement.
I never calculated a goal for my emergency fund.
I didn’t have a house purchase on my radar anytime soon.
I didn’t have a timeline – or budget – for when or how I wanted to get a dog (which let’s be serious, is so up there on my personal goals list and always has been.)
I just knew I should do these things, so I did. But it turns out that saving 30% of my take-home income at that point in my life was majorly stressful.
Anytime I would think about big purchases or future plans, I felt like an elephant was sitting on my chest because I never thought I’d be able to afford any of them – because I had never linked my admittedly recommended financial habits to set money goals of any kind.
When you put the two together? Magic.
Had I actually set some money goals for those savings contributions, I could have focused on what my efforts were going to get me. A secure retirement someday? A freeloader roommate rescue dog? Enough of a savings cushion to not freak out when I was (inevitably) in between jobs?
That would have been infinitely preferable, and honestly, would be pretty in line with my current strategy of focusing on both my goals and my habits.
I have some big financial goals right now – said every person in their 20s, ever. I know I’m not alone on that. I’ve got savings goals for my emergency fund, my dog’s emergency fund (I knowwww I’m totally that person) a house downpayment, retirement and vacations.
If you’re keeping track, that’s two more things than I was saving for in my totally-stressed-out-about-money phase.
But I have measurable, concrete goals for each, and I’ve really prioritized each of those goals, even against each other. For example, my monthly vacation savings is about 1/3 of my monthly house downpayment savings – because owning a home is way further up on my priorities list than travel.
So, knowing that I want to achieve all of these things, I’m also focusing on building the habits that will help me get there.
I’m increasing my savings rate, setting up separate accounts for each goal, being more frugal with books, cooking, coffee and other monthly expenses, and tracking my spending to make sure I’m on track.
That’s a far cry from my admittedly spend university days.
And you know what? I’ve had more success meeting my financial goals this year than I ever have in years past.
That’s the power of combining goals and habits.
What financial goals have you set for yourself for this year – and have you thought about which habits might help or hurt them? I’d love to hear what you’re working on in the comments!
Desirae, this is great! I think this is the best post I’ve read on habits and setting goals as it relates to money. (And I read a lot of them!) I especially loved how you tied it to your own personal experience and journey. Great advice! Great life lesson!
In addition to Gretchen Rubin, have you read or watched any lecturers from Stanford’s BJ Fogg? If not, definitely take a look at his research and “tiny habits” approach for behavior change through habit building. cheers!
Wow, thank you so much Mike! I actually haven’t heard of BJ Fogg but I’m going to check out his videos – I love finding out about cool research (said the nerd, haha.) Thanks for the recommendation!
There are not a lot of us “Behavior Change Nerds”, but we need to stick together!! haha. 🙂
I love this. It really is a step system. Once you get the habits to reach your goals, you step up and are ready to do something bigger!
Thanks Maggie – I love the writing you’ve done about habits so it means a lot! Also, I tried to comment on your latest post but my spotty Vegas hotel internet ate it – I am THE MOST excited to hear about this art selling adventure that you had!
Absolutely! When you put both together, I love how you call it magic – it really is! Combining habits & goals creates more of a systematic, strong & steady (whoa – three S’s there!) approach to whatever you’d like to accomplish. When I started my blog it was amazing how many positive habits developed, and the goals that we reached. It’s always a fine tuning process, but the forces of habits & goals almost creates a different energy than just one, or the other independently. You’ve got 2016, Des! 🙂
Blogging has been SO GOOD for building habits for me too! Not just the habits of writing two or three times a week – a must, and something I miss a lot when I don’t do it! – but also for strengthening my money habits too. If I were to blow $300 on books this month, I know I’d have to own up to it to everyone, haha – the accountability is so important for me (which is actually what my post tomorrow is about!)
So glad you found a combo of habits and goals that’s working for you. What’s funny is we’re bad at the good habits part, so we put systems in place to take the decision out of it. We’re all about the auto-deductions and auto-investments, and we literally decide zero times in an average month to put money where it needs to go to reach our goals. (Exception: end of year, when we decide how to allocate our bonuses between investments and mortgage paydown.) So our “habit” is more tech-based, and less mind-based, but it works for us! 🙂
That’s awesome – and I love your post today about exactly that! Decision fatigue is a real, real thing, haha. I find that for things that I can’t quite systemize, using “rules” does a similar thing too – like, “I don’t eat sugar,” instead of “I’m trying to avoid added sugar.” A hard-and-fast rule – even if you’re just tricking yourself, it’s not like sugar is going to kill me anytime soon – has been my go-to when I can’t automate parts of my goals 🙂
Looks like you are ready to tackle 2016! Good for you, these are awesome goals. I think for 2016 we only have one real goal, which is going live on the blog on Thursday so stay tuned! Cheers to a wealthy year!
I can’t wait to read it tomorrow Janine! And I LOVE that – yes, cheers to a wealthy year for sure!
Wait, are you going by Desirae or Des now?
Suuuuper good points here. Man, do I need to get me some goals other than “get out of debt” and “not be penniless in retirement”. Not that those ones aren’t important, but it would be good to figure out some other more specific ones.
Ok, so I haven’t read that particular book by Gretchen Rubin, but have you read The Power of Habit by Charles Duhigg? It’s SO GOOD. A friend recommended it to me, and I thought it was going to be a sort of self-help book, but it’s much more of an intellectual, researched-based (and super engaging) book on psychology. I’m having a bit of deja vu right now, so I’m sorry if I’ve already recommended it to you, but it deserves 2 recommendations! 🙂
Hahaha this is so like the time I didn’t know if I had been offensive calling you Sarah instead of Sarah Noelle all that time! And either is fine – Desirae is my full name but almost everyone calls me Des, so whichever is easier. Honestly, all my comments will probably stick with Des!
I think your goals are amazing, especially since you’re still waiting to find a job! I think you’re going to have a ton of fun getting into the groove of whatever amazing new position you land, and once you get a sense for your cashflow, you’ll have the best time thinking about what goals are most important to you, besides paying down your debt.
And I actually recommend The Power of Habit at the end of my post tomorrow, but I’m going to give you a shout out in it so people know it comes really, really highly recommended! I absolutely loved it for all of the reasons you mentioned, and had the same reaction to it at first, lol.
This is a super good post. I’ve always been good with the habit part — probably too good — in that I go overboard and become obsessive to achieve the goal. I’ve learned that it’s really important to set some goals that are fairly short term that that come with some kind of tangible reward. A trap I fell in was to save emergency funds to cover me for a layoff, and then just set another “non fun” goal after it. The result was a lot of years went by where I was saving for things that had never happened at the expense of living.
It’s just an example that too much of a good thing ain’t so good… Now we save principally for long term goals but also set money aside for medium term rewards. In our case, we spend about 10% of the amount we save each year on travel. It makes it feel like all the saving has been rewarded with something!
Haha I totally get that – actually taking money out of my “vacation and gifts” savings takes a little bit of convincing, but at the end of the day, I know I’m still being responsible and working towards the somewhat less fun goals I have for myself, so I should let myself spend what I’m putting aside for fun! It’s also been great knowing that even with two destination weddings we’re attending this summer, I’m not going to have to spend anything that isn’t covered by that vacation savings goal.
Goals and habits really do go hand-in-hand, don’t they? What I’ve been really interested in lately is the shedding or refining of bad habits versus the adoption of positive habits. I think they’re different processes.
That’s an awesome distinction Penny, and I totally agree – especially since some bad habits can be really, really tempting (and others are literally addictive!) Honestly I didn’t read through the book with that distinction in mind, but I own a copy of The Power of Habit (from my spendy Amazon days!) and I’m going to take a look through and see what, if anything, it has to say! It’s been a few years since I’ve read it anyways, probably time for a refresher.
The best part of goals and habits and that you can and should start small. I have $6k in student loans to pay off by May but I obviously can’t do it all in one sweep without doing some damage to my emergency funds. So a small first step was to make one small payment, the feeling of achievement washed over me and i can’t wait to make that next payment! I’m that much closer to being rid of it!
Wooooo! Congrats on taking that first step – that’s huge, and I’m so excited for you that you’re letting yourself celebrate it! That’s a wonderful way to look at it, and I’m excited for your next payment now too – it’s contagious 🙂
This is great Des!
Before my wife and I got our finances together we had decent habits, but no real goals. Thinking of something huge like a down payment on a house or something far off like retirement seemed so intimidating! It was just so easier living for the weekends and buying gadgets. :).
Now that we have a daughter we really looked into what we wanted in life and really zeroed in on how we could retire early, pay for our daughter’s college, and go on vacations. Now we’ve formed great habits to work towards those goals!
Sometimes you just need that extra kick in the rear to get you going! My daughter was that kick. I blog to encourage others to do the same.