As I start the New Year writing about money decisions, I want you to understand that this is NOT going to be an article about how that mocha latte you bought this morning is preventing you from being a millionaire!

And while you may not have sworn off mocha lattes, it is highly likely that this year you have committed to being smarter with your money. 

How did I know? This is a common resolution. This comes up every year because people are, generally, irrational with their money.

We all make decisions that make sense in the short term, or bring a short-term benefit or pleasure, without understanding where that decision fits in the big picture.

It’s weak, it’s terrible, it doesn’t make sense. And it is very human.

So first, you’re going to have to let go of the blame and guilt you feel around poor past decisions.

How your brain responds to money

The human brain is often controlled by the amygdala, or the hidden “monkey brain” that acts on instinct. We talk about it often in terms of “fight or flight”. It makes decisions irrationally and quickly based on the slightest hint of danger.

You have to understand this in order to make good decisions. This part of your brain kept your ancestors alive for centuries, and it is very hard to tame.

When you start thinking about money issues, you are thinking about life and death situations. Our livelihood, our status, our self-image … they all depend on our economic success. This is why our money-hungry brains often short-circuit when making money decisions.

Our amygdala thinks the decision is life or death.

Worse yet, some of us have become very skilled at ignoring the signs this part of our brain is sending, or pretending we are not making a rash, irrational decision when in fact what is exactly what we are doing.

So, when you sit down to make economic decisions, avoid these mistakes this year.

Mistake #1: Trying to track everything

A sure-fire way to make sure your resolution isn’t going to work this year is to make it twice as hard as it has to be.  A lot of us do this to ourselves with money decisions because we promise that we will track every expenditure to the penny.

We create complicated charts and shove them in our purse or stick them with a fruit magnet to the front of our refrigerator.  At the beginning, we start out strong. We write down every expense, we put our receipts in the envelope.

Then the holidays end and we find ourselves back in the hustle and bustle of everyday life. Or perhaps this happens as the quarantine slowly gets lifted or we get our vaccine.

And a couple of days pass where we don’t record everything. and now in addition to perhaps not having met our goal, we have also failed at tracking our goal and the failures start to cascade.

Solution #1: create a resolution that does NOT include the extra work of detailed tracking.

Mistake #2: Setting unrealistic goals

Another common New Year’s resolution money mistake is setting unrealistic goals. This doesn’t mean that everyone strives to be a millionaire. 

The most common unrealistic goal did I see is people believing they can manage every penny, and then setting a goal that includes zero unanticipated expenses

If you look at your typical income and your typical expenses, it is unlikely that in one month you will be able to put the entire difference into your savings account.

Life doesn’t work that way.

Instead, you should give yourself general guidelines and aim to end up in a range. This way you give yourself success for improvement. After all, every dollar you save this year that you didn’t save before is a win. Why treat it like a loss because you failed to meet a goal?

Solution #2: Set a goal based on saving a rough percentage of your money, not a precise target.

Mistake #3: Not celebrating successes

Early in the pandemic, one family found themselves in unfamiliar territory. Husband lost his job, and Wife was in a part-time job that offered no benefits. 

For several months they were living off their savings, before Wife got a promotion that included full-time work and benefits.

During this time they set a very modest food budget that was just half of what their budget used to be. 

Smartly, they built in a reward to incentivize themselves. If they met their goal at the end of the month, they could use the rest of the money to eat out.

The first month, when the wife returned home from work, she was met with a surprise. Her son and her husband dressed in suits, the dining room table was set formally, with wildflowers in a vase and candles glowing.

On each plate, an Arby’s roast beef ‘n’ cheddar sandwich, and ⅓ of a large order of fries. 

It was, perhaps, the most formal dinner ever to feature Arby’s.

They had met their goal. Their laughter over dinner that night, over a $10 meal, sounded as rich as their meals at far fancier restaurants over the years.

Solution #3: Build in ways to celebrate wins, and generously define a win.

Do you have a challenging money problem that is costing you sleep, or robbing you of your sense of independence? You likely will benefit from talking to a licensed therapist like Sakina Issa.

Luckily, these conversations can happen discreetly and by appointment using the same tools you have grown comfortable using at work, like Zoom or GoToMeeting. Just click the button in the upper right hand corner.

Want to learn more about parenting or managing tricky sibling relations? Maybe you are working out a new set of goals for yourself?

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