Are your New Year’s Resolutions threatening your financial plan?

If you’re the type of person to enter self-improvement mode as soon as the clock strikes midnight on New Year’s Day, make sure your financial resolutions aren’t getting in the way of your financial plan. Here are some questions to ask yourself before setting any money-related goals for 2024.

Do your goals complement your financial plan?

We often speak to clients around this time of year who are in the mood to make big changes to their lives. They might be considering paying off their mortgage early — spooked by rising mortgage rates or inspired by friends who’ve achieved financial freedom. Or maybe they’re eager to take advantage of falling house prices and build a buy-to-let portfolio.

There’s nothing inherently wrong with setting financial resolutions. Good short-term goals can propel you forward and help you achieve your long-term objectives quicker. But bad short-term goals can cause mayhem for your financial plan. 

For example, investing in property could become a worthwhile source of income, but we’ll need to crunch the numbers and do some cash flow modelling first, particularly if you’d need to sell existing investments or use a significant portion of your savings. 

Are you looking for something to share and celebrate?

A friend from school has just opened a coffee shop, a former colleague has retired in their 40s, and an influencer has sold their business for £10m. You only need to spend an hour on LinkedIn, TikTok or Instagram to be bombarded with hundreds of success stories and celebrations.  

When setting your New Year’s Resolutions, consider whether your goals are influenced by the triumphs of those around you. 

It’s completely natural to draw inspiration from others. Following in your friends’ footsteps isn’t inherently bad. But if you’re setting goals just so you have something to celebrate and share later in the year, there’s a risk your resolutions won’t match up to your long-term plan. 

Are you looking for quick wins?

In 2023 we watched the Bank of England’s base rate reach 5.25%, car insurance increase by 58%, and inflation rise by 4.7% in the 12 months to October. With yet another energy price cap increase this month, we can’t blame you for craving some quick wins in the coming year.

If you’re tempted to make any bold financial decisions in 2024, such as starting a new business, exploring an unfamiliar asset class, or selling existing investments, talk to us first. 

Unscrupulous business owners, multi-level marketers and outright fraudsters are in their element during times of financial uncertainty. In fact, there were almost 1.4 million cases of fraud in the first half of 2023, resulting in over half a billion pounds in losses, according to UK Finance.

Is this an impulse decision?

You’re most likely to achieve goals that are specific, measurable, achievable, relevant and time-bound, but most New Year’s Resolutions are simply impulse decisions wrapped up with a bow. 

We could create the ‘perfect’ investment strategy only for your own impulse decisions to throw the plan off course. When behavioural finance experts Oxford Risk surveyed 150 wealth managers across Europe, 41% cited impulse decisions as the most common investing mistake, followed by evaluating returns over too short a time period (33%) and overconfidence (30%). 

So why do we make these impulse decisions? Research from Barclays suggests that impulse investment decisions are usually motivated by excitement, impatience or fear. We’re also likely to be influenced by social media, friends or a fear of missing out.

Almost half (47%) of respondents in the Barclays survey admitted to often feeling anxious about their investments while two thirds said they feel excited when checking their investments. These very emotions can lead to other poor investment habits, such as monitoring your investments too closely, meaning you’re more prone to reacting to short-term fluctuations and less likely to stick to your financial plan. 

How can we help? 

When setting financial New Year’s Resolutions, don’t be afraid to ask us for help. We’re not here to crush your dreams or put a dampener on things. Instead, we’ll explore all the whos, whats, wheres, whys and hows. For example, why do you want to tackle each resolution and what do you hope to achieve in the long run? What will you need to do and what will you need to sacrifice? 

Get in touch if you’d like to chat.