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Making Mindful Financial New Year's Resolutions

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If you are someone who makes financial New Year's resolutions and often doesn't keep them, behavioral economics can help. Behavioral economics This field studies psychology as it relates to economic decision-making. Ideally, people would make the financial choices that benefit them the most, but that doesn't always happen.

The rational choice theory states that when presented with choices under scarcity, people will choose the option with the most personal satisfaction. However,  there is often a gap between our financial resources and wants. Scarcity requires us to decide how to use our money efficiently.

That's where behavioral economics comes in. Sometimes we make rational financial decisions,  and other times we don't. Here are a few examples:

  • Budgeting: Buying a latte at a coffee shop twice a week versus daily spending, which is more than your budget allows.
  • Debt: Paying off credit card debt and not using credit versus making payments but accumulating more monthly debt.
  • Investing: Consistently investing each month versus occasionally investing, depending on market performance.
  • Herd mentality: Spending and investing based on your financial situation versus spending and investing in keeping up with your peers.

When it comes to keeping resolutions, understanding behavioral economics may help you make confident financial decisions in the following areas:

Personal debt: Working toward eliminating personal debt such as credit card, auto, or other personal loans.

Investments: Determining appropriate investments for your goals, risk tolerance, timeline, and situation.

Retirement savings: Regularly contributing to your retirement savings accounts and maximizing contribution amounts based on your age and timeline until retirement.

Insurance: Reviewing, updating, and purchasing insurance coverage for your situation to offset the risk that can derail your financial goals.

Money management: Develop a monthly budget to help you understand your cash flow and where you can make objective improvements.

Seek investment help: Working with a financial advisor for comprehensive financial planning.

Behavioral economics can help you be mindful of the consequences of how you spend your money in the new year. Start by writing down your financial resolutions, thinking about them, creating your plan, working toward them, and revising. It may help to discuss your financial resolutions with an accountability partner, such as a spouse, close friend, or financial advisor.

Talk to a Financial Advisor

Financial advisors with BECU Investment Services are here to help. They get to know you and understand your goals so they can implement a financial and investment strategy that's best for you. Set up a complimentary consultation or call 206-439-5720.

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