POV: It’s January 1 and you’ve got big plans.
And then, POV: It’s January 5 and those big plans actually sort of sound like plans you might have made with a friend after a few drinks at a pre-COVID party. Cool, but maybe feeling a bit far away, now.
Let’s say you’re like a lot of folks that went into a bit of debt over the holidays. Or you’ve got student loans with a principal balance that somehow never seems to shrink. Or you’ve been livin’ large on a… not-so-large income. We feel you. So, here we are: it’s New Year’s, and it’s a perfect time to make a change.
If you love making New Year’s Resolutions, you’re not alone. When the clock strikes midnight and everyone cheers, there’s a distinct feeling of excitement and possibility, like something great is on the horizon. So we resolve: this year, I will exercise more. I’ll create more. I’ll be better with my money.
Then, you hit a speed bump. You miss a few yoga classes. You realize you actually hate cross-stitching. You forget about a friend’s birthday, and guilt-purchase a way-too-expensive gift on credit, and are too embarrassed to check your balance.
The Fallacy of New Year’s Resolutions
Every year, we hope that sticking to our resolutions will make us better, happier people. Often, we’re even quite reasonable with our goals, breaking them down into manageable steps that we should be able to handle on the day-to-day. And then, for some inexplicable reason, it just doesn’t work.
And then we feel bad, very bad. It’s the end of week one, and your budget is already out the window. What’s the point of continuing?
This pattern is at the heart of the fallacy that comes with New Year’s Resolutions. According to a recent study, 50% of folks that make resolutions have quit entirely by July 1, and 25% of folks that made resolutions have abandoned them by… wait for it… January 7. Yeah. You read that right. By the end of week one, a quarter of all resolution setters have called off the effort.1
But New Year’s resolutions feel so inspiring and energizing. So where do we go wrong?
The fallacy of New Year’s resolutions comes from an “all or nothing” mentality. You went a bit hard online shopping, missing your spend goal, so you just give up. It’s just too hard to spend and save perfectly. We’ve been there.
But it doesn’t have to be this way. One screw up—or five—isn’t a reason to write yourself off. You just need the right tools to succeed.
The 50/30/20 Budget Rule
Here’s the thing when it comes to financial hygiene and savings goals: every little bit counts. Say you can’t put $1,000 onto your debt this month—$500, $50, or even $5 still gets you closer to your goal of being debt free.
The 50/30/20 budget rule makes this “little by little” strategy easier to understand—it allocates all of your income and grants you total visibility. This rule suggests you allocate 50% of your after-tax income to your “needs,” including bills, rent, and health premiums. 30% goes to your “wants,” which includes stuff like going out for stupid-expensive brunch. Your “wants” are things you don’t need to survive, but are important because they make life fun and comfortable. Lastly, the final 20% goes toward paying down your debt, or into your savings, in a ratio that makes sense for you (we always recommend getting out of debt first!).
The nice thing about the 50/30/20 rule, though, is its flexibility. Say you nail it in January, but when February rolls around, you’re in 50/45/5 territory.
Rather than setting an objective-focused resolution, like trying to hit a specific dollar amount in your savings every month, the 50/30/20 rule is about building healthy financial habits. When you get paid, you know where every dollar should go, and you always know if you’re on track.
This is one of the reasons we love MogoSpend—after every purchase, we send you a notification that reminds you of the transaction total and your remaining balance. We’ll even send you insights and reminders to help you keep your spending under control, helping you make your money last. You get visibility and control in one easy app.
So yes, it might sound a bit paradoxical, but the point of this budgeting rule is not necessarily to nail every month. It’s about keeping your goals in mind without punishing yourself—and abandoning your resolution—if you do come up short.
Why does this rule work? Because on the path to lifelong financial health, it’s not about being perfect, it’s about making progress.
As far as New Year’s resolutions are concerned, try this on for size: I will try my best every month to hit the spend/save ratio that works best for me, and if it doesn’t shake out perfectly, I’ll try again next month. Because, for the people in the back: the point is not perfection. The point is progress.
Hitting your spending or savings goals may not be easy, but you can do it, and we can help. You got this. Happy New Year!
1 Polivy, Janet, and C. Peter Herman. “If at First You Don’t Succeed: False Hopes of Self-Change.” American Psychologist, vol. 57, no. 9, 2002, pp. 677–89. DOI.org (Crossref), doi:10.1037/0003-066X.57.9.677.
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