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New Years Resolutions that will - really - make a difference

Before you put too much effort into making meaningful, fresh-start New Year resolutions, let me tell you what the 10 most common are:

  • Get organised
  • Help others
  • Spend more time with family and friends
  • Get a better job, or cut stress at work, or make more money at work
  • Get fit, eat better and/or lose weight
  • Quit smoking and/or drinking
  • Get out of debt and save money
  • Enjoy life more, which often means cutting stress generally
  • Get a better education or, at least, learn something new
  • Take a trip to somewhere new
Chances are yours fit in there somewhere. And if you can pull one or two of those off every year, then you’re doing well.

But what we also know about resolutions is that what seems doable in the hazy lazy holiday season, may seem impossible come February, once the novelty has worn off and the real world is all too present. And then, because our resolutions tend to be ambitious, we give up. In one university study in Hertfordshire in England, just 22% of those asked were still on track with their resolutions three months into the year.

But why don’t we persist with changing even those things that are painful, like being in debt? Are we all quitters?

In the Hertfordshire study, a pattern was found: of those who failed, most had focused on the downside of the habit or pattern they were trying to break. They had suppressed cravings, or relied on willpower alone. But the most interesting finding is that the people who had stuck to their resolutions tended to have broken their goal into smaller steps.

The so-called “Theory of Small Wins” is worth thinking about. It’s been around in business and psychological thinking since the late 1970s, and it proposes that the best way to get anything done is to think in terms of small, low-cost, opportunistic successes. Individually, these might seem insignificant, but together they add up to real positive change.

The theory is based on the psychology of winning: it is highly motivating to keep seeing success coming our way. Little successes activate the reward circuitry in our brains, and establish a culture of anticipating and constructing success. It’s a chemical thing: the key substance released when we achieve success is dopamine, which increases problem-solving ability, and alerts us to further opportunities for success. For instance, if instead of saying “I will lose 10kg”, we say “I will lose the mid-afternoon chocolate, and get to gym three times this week”, our chances of immediate success are higher. Which, in turn, makes the 10kg a more likely long-term outcome.

Worryingly, by the way, the reverse also applies: every failure makes it more likely that we will fail again.

So, let’s take one common resolution, and work out a strategy for success. Let’s choose debt, because it seems to be a scourge for South Africans – the Credit Bureau Monitor recently reported that there are now nearly 8-million South Africans struggling with debt (which they define as being in arrears of three months or more).

Let’s say that somewhere along the line I’ve lost the plot financially. I have a job, but no savings. I have a couple of credit cards, and store cards but they’re maxed out. I manage to pay the minimum most months. I’m way behind on UIF for my cleaner. I raid my access bond for cash when I have a big unexpected expense, like tyres that need replacing, or a tooth that needs capping. I don’t think I’m irresponsible, and I’m postponing things like home maintenance and holidays away until I’m in a position to pay upfront for them, but still I’m so busy paying interest that I’m not catching up.

Here’s the small-wins approach to getting out of debt:

January goal: I will create a spreadsheet of all my formal debts and other financial obligations; and compare it to my income streams. Small win: Knowledge is power. What you can see has less power to surprise and hurt you.

February goal: The end of the tax year. I will make an appointment with a tax consultant, and scrutinise my financial life for opportunities to save tax. For instance, am I taking advantage of my legally allowed tax break for retirement savings? Small win: By February 28, if I have to (and if I can), I will move money around to make myself more tax efficient. If it’s not possible, I will add that to my “to-do” list for next year.

March goal: While my financial picture is still fresh in my mind, I will make an appointment with a financial adviser to take a helicopter view of my risks and insurances. Should I be consolidating certain of them? Am I over-insured? How am I at risk? Small win: By March 31, I will have actioned any decisions we make. I will be more financially efficient, and I will be safer.

April goal: I will keep a spending diary, and note down everything I spend, from stop orders down to the last cappuccino. I will scrutinise all my bills, and note how much of my payments each month are interest, and how much are about getting rid of debt. Small win: On April 30, I will create a budget showing just where the money went this month. It’s clear now, in black and white, what is going on.

May goal: I will look at April’s budget, and decide which of the nice-to-spend areas I can do without for May - lunchtime take-outs, perhaps? Then I will rank my debts according to the most expensive (i.e. the highest interest) to the lowest. Before the first week of May has run out, I will pay the money I have decided not to spend into my most expensive debt. Small win: debt reduced, interest reduced, and an area of routine but non-essential spending eliminated.

June goal: How did it feel to go without what I eliminated in May? Not so bad. I’ll take that money again and again put it into my most expensive debt. But now I’ll find a second area of routine but non-essential spending, and put that money, too, into the most expensive debt. Small win: see May! Frugality rocks!

July goal: Third (and last) round of looking for something to do without. Small win: the most expensive debt is pretty close to being paid off!

August goal: I’m keeping up July’s debt-attrition programme until all my short-term debts (credit and store cards) are settled. When the most expensive debt is paid, I take the money I used to have to pay into it, plus the savings I learned to make in May, June and July, and put it all into the next most expensive debt. Small win: it’s miraculous to see how the momentum builds up, and debts disappear faster and faster.

September goal: I will freeze all credit and store cards until the end of the year - in a bowl of water, in the freezer. And I will cancel my overdraft at the bank. This is the hardest month, but that’s because it’s the month of rebirth. From now until the end of the year, I’m a cash-only or debit-card-only person. If I can’t pay for it, I will do without it. Small win: the old-fashioned and empowering relationship between my desires and my means.

October goal: In the spirit of sustainability, I will look at every part of my life with a view to eliminating wastefulness – lights left on, pool pump left running, taps left open, food going off in the fridge, using the car for 300m runs to the café, buying bags on every supermarket trip, and so on. Small win: living consciously is the single best trick any of us can learn to increase our appreciation of the value of small change, and the insidious costliness of carelessness.

November goal: In this month, corporates often invite us to re-look at the way our salaries are structured. Changes could include increasing our contribution to the pension fund, adjusting our medical cover, opting in or out of optional funds. I will call my financial adviser and – by the company’s deadline – make sure my package is restructured in a way that best reflects my immediate and medium-term needs. Small win: more bang in my pocket for the company’s buck.

December goal: Starting at the beginning of the month, I will draw up a list of people I am likely to be exchanging gifts with in the festive season, and come up with something special I can give each of them that costs me R100 or less. Vouchers for babysitting / back rubs / home pedicures are good; home-baked Christmas cakes or jars of spiced olives are always gobbled up. And no defrosting of cards to make it happen! Small win: hang on, you’re out of debt! You’ve made the big win.

The misery of debt is hardly new – even in Shakespeare’s day, there were plenty of injunctions about avoiding them. My favourite:

"Some debts are fun when you are acquiring them,
But none are fun when you set about retiring them."
US poet Ogden Nash

Consider debt counselling Don’t ignore financial problems  Did you know?
Banks, the National Credit Regulator and the Debt Counsellors Association of South Africa (DCASA) have got together to create a free resource for South Africans overwhelmed by debt.

Call 0861116362 or SMS 32422 to get advice from a call centre managed by the National Debt Mediation Association (NDMA).

Often, we struggle to face unpleasant facts, and we ignore problems until they become too big to ignore. But with debt, like with cancer, the best chance of escaping is to catch it early. 

Credit isn’t bad. Only the super-rich can afford to pay cash for cars or homes, for instance – the rest of us rely on credit. Many analysts consider that credit only became a drain when it became possible for us to eat and drink on credit.

It changed our relationship with money. There’s something very odd about paying for your loaf of bread 60 days after you’ve eaten it, or about paying off a T-shirt for six months after you first wore it. 

Article first published on at 10 December 2010
Liberty Group is an Authorised Financial Services Provider in terms of the FAIS Act (Licence no. 2409). The information contained in this communication, including attachments, is not to be construed as advice in terms of the Financial Advisory and Intermediary Services Act of 2002 ("FAIS") as the writer is neither an appointed representative of Liberty, nor a licensed financial services provider as contemplated in FAIS. Please consult your financial adviser should you require advice of a financial nature and/or intermediary services.