The Problem With Financial New Year’s Resolutions (And What to Do Instead)

Eshan Patel
Jan 12
2 min read

Every January, I always hear a version of one of these things from my friends and family:

“I’ll save more.”
“I’ll stop wasting money.”
“I’ll finally start budgeting.”

But by February, these same people go about like these words were never said. Financial New Year’s resolutions fail because they’re built on hope. However, in the case of resolutions, structure is more important.

Why Financial Resolutions Usually Fail

From an economics standpoint, these goals that are seemingly foolproof have two major flaws:

They’re vague, which means that your brain can’t act on them
They rely on self-control, and for many people, that is not very reliable.

Behavioral economics shows that willpower is unreliable, especially when spending decisions happen quickly and emotionally.

The Real Enemy: Friction

Friction is anything that makes a behavior harder. Saving money usually has high friction because:

You have to think
You have to choose not to spend
You feel like you’re giving something up

However, unfortunately spending money has low friction:

One click to buy it
Instant gratification and excitement for your purchase
No immediate pain or consequences (even though they are most likely inevitable)

A Smarter Approach: Change the Default

Instead of relying on discipline, change what happens by default.

Examples:

Money automatically moves to savings before you can spend it. By not even giving yourself the chance to impulse buy, you are already taking a step in the right direction.
Your checking account balance is intentionally kept low, so that it is not even possible to do something you would regret.
Spending alerts notify you before you overspend. These can keep you in check.

Economists call this choice architecture: designing decisions so the better option is easier.

One Financial Reset That Actually Works

If there is one thing that I recommend, which usually works for me, is to separate your money by purpose

This is how I set it up:

One account for spending
One account for saving
One account for long-term goals

This worked for me because by creating these sections, it reduces impulse spending as you will naturally not want one group to be lower than the others. Also, every dollar has a job in the grand scheme of things, making you more attached to saving it, not losing it through spending.

The 30-Day Rule:

This is an example rule that can help keep you in check. Before any non-essential purchase:

Wait 30 days
If you still want it, buy it

This works because it reduces the opportunity for impulse spending. Obviously there are flaws to this plan in certain situations, so feel free to adjust it when necessary. Most of the time, you’ll notice that the desire disappears, and the money stays.