We are only a few days into the new year therefore many of us are wrestling with our failing attempts at achieving whatever new year’s resolution we chose to burden ourselves with.
Having spent some time thinking about and reading about the subject of “goals” it got me thinking about how goals themselves really aren’t all that. In fact, focussing on goals at the expense of developing good habits can be quite damaging – especially in a financial planning context.
The myth of goal setting
We have all heard the story of the 1953 Harvard Goals Study which apparently “proved” that those who set written down goals were more successful than those graduates who didn’t. But this study never happened and neither, by all accounts, did the one amongst students of Yale university. They were just myths. Consultants, life coaches and business advisers have all traded well off the back of this fictional piece of academia but what about the recipients of such advice?
The most common example at this time of year is those of us who want to lose 2 stone by the Spring. We sign up to the gym on the 2nd January and make a few token visits, as when you start to work out the cost per session it does tend to focus the mind a bit. But usually by February, one tends to manipulate the cost benefit analysis so it starts feeling more favourable and then we are back midweek drinking and snacking in the afternoons. We revert back to type and will most likely end up setting exactly the same “goal” again next year.
Perhaps the answer is to focus more on developing good habits and less on achieving goals. Rather than setting targets such as becoming a millionaire or achieving a certain return on your investments, why not focus on the potentially easier and more beneficial objective of developing good habits, such as keeping track of your income & expenditure or saving a percentage of your income each month?
Going back to the health analogy, surely it is better to get into the habit of exercising a couple of times a week rather than hitting a target of losing 2 stone by a certain arbitrary date? The longer term benefits of developing good habits are huge and are unlikely to be reversed – as opposed to the goal-setter who may hit their target but then is back in the pub, rarely to be seen in the gym again…..at least until next January.
Good financial habits for 2017
Most financial planners know that developing good financial habits are critical for their clients’ success. Seeing how clients change habits as a result of good advice is one of the most satisfying parts of the job for many advisers and one of the most valuable benefits for the client.
I’ve come up with my top 2 financial habits for 2017 (or probably any other year for that matter). They may not be as exciting as some outlandish goal but I do know that mastering these habits will most likely enable you to accomplish most, if not all of your financial goals anyway – and hopefully with a lot less pain, disappointment and frustration along the way.
- Pay Yourself First: Not an entirely new concept but one habit few people adhere to. People often save what is left at the end of the month – which invariably is very little. Get into the habit of saving first, and then spending what is left. You want to buy a new 50″ flat screen TV? No problem. Just do it after you have paid yourself first.
- Spend less than you earn: Not a big departure from paying yourself first but putting £200 into an ISA while you mount up a credit card bill isn’t a good idea for most people. Mike Tyson, one of the biggest earners in boxing history ended up bankrupt. Very bankrupt. He spent more than he earned – which in itself was some achievement – and this meant he most likely ended up poorer than the person who cleaned the ring after his fights. Get into the habit of always spending less than you earn.
What is the best financial habit you have developed? What do you wish you had started doing earlier? And if you need some help in developing good financial habits then do get in touch…..