Gym (Photo credits: www.mydoorsign.com)
This time of year it’s cliché to make resolutions for the coming year. Whether it’s to lose weight, stop a bad habit, or begin saving for retirement, many of us set these goals at the beginning of the new year. And then three weeks into the new year, we’ve left that goal astern – having changed nothing at all.
The problem is in how we set goals for ourselves. For example, we might make the bold statement that we want to lose weight. Often, that’s all there is to our resolution – but there’s much more to setting a goal than making a statement about it. There has to be a plan, and some specifics around the goal.
If the resolution is to lose weight, first of all you need to put some specifics around that goal:
I want to lose fifteen pounds in 2014.
Now, how are you going to do this? Is it going to happen all at once? One fine day you’ll wake up and you’re 15 pounds lighter? Of course not. But it’s that “presto” mentality that often derails us. We dive into our 15-pound goal with much gusto, going to the gym and working out four days a week for the first week. (Have you ever tried to get a treadmill at the gym during the first week of January? Impossible!)
Then, when we don’t see the automatic result after the first couple of weeks, we get discouraged, and we start to fall back into our old routines. Pretty soon we’ve given up on the goal altogether. How can you stop this cycle? Incrementalism.
Instead of focusing on the year-long goal of losing fifteen pounds, look at the goal incrementally – set yourself monthly goals of losing 1¼ pounds each month. That’s a much more attainable goal, and not one that you have to spend hours on the treadmill each day to achieve. You might be able to achieve this by taking a walk for 20 minutes, three days a week, and pushing back from the table a bit sooner at mealtime. Before you know it, you’re incorporating the walks into your daily routine, and you’re not missing the extra helping of taters – and you’ve lost that month’s 1¼ pounds. Keep up the incremental changes through the year, and voila! you’ve met your yearly goal.
The trick is in looking at shorter-term increments to meet the larger goal. When we look at the larger goal only, we think we’ve got to do something heroic in order to meet the goal. By taking a short term view, we realize that smaller, incremental changes will help us to get to that short-term goal.
Let’s take saving for retirement as an example: In 2014 you have the goal of saving $5,500 to make a full IRA contribution toward your retirement. If we focus on the full $5,500 – that can be a significant amount to come up with. Instead, incrementalize the goal. Look at it in terms of your regular payroll cycle – every two weeks. That works out to $211 every paycheck.
That’s not insignificant, especially if you’re on a tight budget already, but it can be done. There are many places where we’re short-changing ourselves, paying for more things than are necessary. Most folks have more tax withheld from their pay than is necessary, which results in an over-large income tax refund. Making a change to your W4 filed with your employer will help to free up some extra cash to make up the $211 each payday that you are looking to save.
Other areas can be reviewed as well – rarely-used gym memberships, rented storage lockers (full of stuff we haven’t thought of for years!), magazine subscriptions that we don’t take time to read, and lunches out while working – all represent places where we can free up cash for the by-weekly $211 contribution to the IRA.
Insurance premiums – for homeowner’s and auto insurance – can be reduced by upping the deductibles on these policies. For example, a $1,000 deductible on your auto insurance policy (rather than $250) will result in a decrease in the cost of the policy. Most of the time, if you have minor damage to a vehicle (less than $1,000) you’re better off to pay for it yourself rather than submit a claim, since your insurance company will make up the difference (plus!) by increasing your premium in the coming years. The same is true for your homeowner’s policy.
Start going through your month-to-month expenses and finding those places to free up the cash on an incremental basis, and soon enough you’ll have that $211 per pay period freed up, and next thing you know you’ve saved that $5,500 for the year. This is the magic of incrementalism.
Keep in mind that the net result of your $5,500 contribution to the IRA, if it’s a deductible IRA, will be less than the full $5,500 after you’ve prepared your tax return. If you’re in the 25% marginal tax bracket, the net resulting cost is $4,125, since you are paying $1,375 less tax on your income by making the $5,500 contribution.
So – go forth and make your resolutions for 2014. But put some more planning into the process, and incrementalize the goals. You’ll have a much better chance of meeting them. And if you follow this advice, leave word below about your plans and your successes. We’d love to hear about them!