It is not easy to stick to new year’s resolutions about finances, but you can if you know what to do.
By now we have all made our new year’s resolutions and for many cash-strapped consumers this means also making plans to handle and manage your finances better this year to prevent having to deal with Januworry again next year.
“Most people consider the start of a new year as the perfect time to set financial goals but without the right support, it becomes easy to give up when faced with hardship,” Nomi Bodlani, head of direct and private clients at Allan Gray, says.
Recent research by PLOS ONE, a peer-reviewed science and medicine journal, on the success rate of new year’s resolutions, suggests that not all resolutions are equally effective. According to the research people who set approach-oriented goals and receive support along their journeys are more likely to achieve them than those who set avoidance-oriented goals or do not receive support.
Approach-oriented goals focus on taking active steps towards an outcome, such as saving a stated portion of your salary towards an emergency fund, which you aim to accumulate within a fixed time period.
Avoidance-oriented goals on the other hand rely on self-restraint and the avoidance of undesired outcomes, such as unbudgeted consumption or spending excess cash. Support can be as simple as identifying someone to encourage you to remain committed to achieving your goal, or more structured in the form of partnering with a financial adviser.
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More than half of people stuck to financial new year’s resolutions
The research, conducted among more than 1 000 people, found that 58.9% of those surveyed considered themselves successful in achieving their approach-oriented goals a year later. In contrast, only 47.1% of those who set avoidance-oriented goals felt the same.
The study also revealed that participants who set interim goals and tracked their progress were significantly more successful in achieving their resolutions.
Bodlani says that while investing for the long term can be challenging, introducing key milestones along the journey can therefore help investors to remain focused and achieve their goals. Interim goals can motivate you to keep going or galvanise you to take more action towards a goal.
“Break down larger goals into smaller, achievable milestones. Tracking your progress will help you to stay motivated and focused on your long-term objectives. Time is a critical factor in investing. Markets tend to move up and down, but time smooths out this volatility.
“Put simply, this means that if you anticipate some bumpiness and do not give in to the temptation to disinvest when the market dips, you can benefit from the uplift when it comes. Time also allows you to benefit from compound growth, earning returns today on returns earned yesterday,” she explains.
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5 ways to stick to your financial new year’s resolutions
Bodlani says these five ways to think about financial resolutions in 2025 are important:
- Do you have an adequate emergency fund? Bodlani says this is a must-have in today’s world. “Prioritising emergency reserves will help you to preserve your long-term investments for your intended purpose. You should aim to save at least three times your monthly salary, invested in a low-risk unit trust, such as a money market or interest fund. Lifestyle changes, such as paying off expensive credit card debt and setting up automated savings to “pay themselves first”, can make saving for emergencies easier.
- If you are investing for the long term, such as for retirement or young children’s tertiary education, it is important to consider options that include growth assets (like equities) that should be able to outperform inflation in the long run.
- Prioritise the future of your loved ones by drafting a will or updating your existing one. Statistics suggest that at least two-thirds of South Africans do not have a valid will. Bodlani says having a valid, up-to-date will ensures that your estate will be distributed according to your wishes. In the absence of a will your assets will be divided among family members by applying the rules of intestate succession, which divides an estate according to a set formula and may limit family members’ inheritance.
- Diversify investment risk by going offshore. As the adage goes, do not put all your eggs in one basket. In today’s interconnected world, where various social, economic and political factors affect how markets perform, it is important to have a diverse investment portfolio that includes an offshore component. “Through offshore investments you can ensure that your risk is spread across different markets as they go through cyclical ups and downs, while still protecting your capital and yielding favourable outcomes. Investing offshore will also give you access to companies and sectors that are not available locally.
- Try to avoid dipping into long-term investments for short-term needs unless you really have no other option. In a two-pot retirement system world, where it may be tempting to access a portion of your retirement investment, it is important to see how this can undermine your retirement prospects. Bodlani warns that withdrawing a seemingly small sum today has both immediate and long-term repercussions. “In the short term, withdrawals are taxed at your marginal tax rate, rather than the more favourable retirement tax table and more concerningly, any withdrawal means losing out on years of growth on that portion and having less at retirement.
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If you are not sure where to begin with setting financial goals or know that you struggle to stick to your plan despite your best intentions, consider working with a good, independent financial adviser, Bodlani says.
