5 Financial Resolution Mistakes & How to Avoid Them

Money is top of mind for millions of Americans as we enter 2024 thanks to inflation, high interest rates and recession fears. As a result, a whopping 67 percent of consumers set a financial resolution to pay off debt and save more money this year, as reported by this New Year Resolution study.

Although it’s great to see people setting money goals, unfortunately, many consumers lack the financial know-how and skills to turn these resolutions into reality. Subsequently, only 8 percent of resolution-makers actually stick to their goal as most toss in the rag towards the end of January. Luckily, a few small tweaks to how you set your goals and the steps you take to achieve them can have a big impact on your success.

Here are 5 common financial resolution mistakes along with tips on how to fix them.

Mistake 1: Prioritizing the wrong goal first.

An emergency fund is critical in protecting your financial health, but most people think they need to pay down debt before they can even begin saving. Here’s the thing: you need savings to pay for an unexpected bill, medical emergency or job loss. Otherwise, you will rely on a high-interest credit card to pay for these unpredictable life moments and dig yourself right back into debt.

Aim to save three months of these living expenses in a separate account so it’s out of sight and out of mind. Better yet, open a high-yield online savings account to make your savings work harder for you. HYSA’s like Bread Savings offer a competitive 5.15 percent annual percentage yield, which is compounded daily, helping you reach your savings goal faster.

Mistake 2: Battling high-interest fees when paying down debt.
Credit card interest fees are reaching over 24 percent these days, making it feel nearly impossible to pay down balances on a tight budget. Reducing your interest fees is a crucial step and easier than you may think to achieve.

Begin by negotiating with your credit card issuer—a study from WalletHub found that 77 percent of credit card members were successful in reducing their interest rate when they asked. Meanwhile, a debt consolidation loan can make it easier to manage multiple credit card debts with one monthly payment, and at a lower interest rate. There are even loans for bad credit. For most though, the fastest and easiest way to save on interest is to use a balance transfer card, offering up to 21 months with no interest piling up.

Mistake 3: Ignoring poor spending habits.

While working to improve your finances, it’s equally important to address the underlying issues that got you into debt or depleted your savings in the first place. Ignoring poor spending habits may sabotage financial progress and lead you back to square one. Spend some time reflecting on your buying behaviors to identify and eliminate spending triggers.

For example, if you can’t resist a sale, delete payment details saved in retail accounts and unsubscribe from store newsletters. Instead, look for coupons only when you need them. Finally, if you shop to make yourself feel better, find other ways to deal with your emotions.

Mistake 4: Letting a limited income stall progress.
Living paycheck to paycheck makes it more difficult to reach your financial goals and can often stall progress (and a frustrating situation that often leads to burnout). However, there are easy ways you can earn some extra money in your spare time thanks to the endless side hustles.

Some ideas include: conducting online research for companies like Wonder, raking in up to $1,000 a month by petsitting through sites like Rover.com, and earning $20 to $50 per hour by virtual tutoring at sites like Varsity Tutors—the options are endless.

You can even rent your car when it’s not in use via Turo or baby gear you no longer need via BabyQuip. Plus, make money on daily essentials by using cash-back apps—snap pictures of your receipts using Fetch. The app gives you points which are good towards gift cards to stores like Target, Walmart and Amazon that can help offset future purchase needs.

Mistake 5: Being too restrictive with your budget.
A carefully crafted budget keeps you on course to meet your financial goals, but one that is too restrictive can backfire quickly. Those who attempt to change their entire lives overnight will find it difficult to stick to the plan for the long haul. Start with baby steps, making a few small changes to your daily and monthly spending until it becomes a habit, and build from there.

Making room in your budget for purchases that bring you joy is equally important so find ways to cut back in other areas such as your monthly bills–canceling unused subscriptions, unplugging unused gadgets and increasing your insurance deductible are a few simple ways you reduce costs without sacrificing. And tap into sites like BillShark that negotiate better rates with cable companies and other tedious providers for you.