How Behavioral Economics Can Help You Keep New Year’s Financial Resolutions

Behavioral economics and financial resolutions

If you are someone who makes New Year’s financial resolutions and often doesn’t keep them, behavioral economics can help. Behavioral economics studies psychology as it relates to economic decision-making. Ideally, people would make the financial decisions that are appropriate and will benefit them the most.

In economics, the rational choice theory states that when presented with choices under scarcity, people will choose the option with the most personal satisfaction. However, scarcity is an economic problem that is the gap between our financial resources and wants. Scarcity requires us to decide how to use our financial resources efficiently, but often that may differ depending on our choices.

That’s where behavioral economics comes in. Sometimes we make rational decisions, and other times, irrational decisions about our financial resources. Here are a few examples of behavioral economics, rational, or irrational decision-making when it comes to our finances:

  • Budgeting – buying a coffee shop latte 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.
Asset Allocation

When it comes to keeping New Year’s financial 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 professional for comprehensive financial planning and working toward it.

Talk to us today

Behavioral economics is the psychology that can help you be mindful of the consequences of your financial decisions 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 professional. Speak to us today!

© 2023 Trajan® Wealth LLC. Nothing in this blog is intended as investment advice, nor is it an offer to buy or sell any security. Please consult your financial advisor for questions about your personal financial situation. All investments involve risk, including the potential for loss. Trajan Wealth clients and employees may have a position in any of the securities mentioned. Portfolio holdings and other data are subject to change at any time and without notice. Additionally, the above links provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links.

More
Articles

Looking for Something More In-Depth?

Check out our investment blog, Moatiful, written by and for investors.

Flex your financial muscle

Get tactical financial tips delivered regularly to your inbox.

"*" indicates required fields

Name*
This field is for validation purposes and should be left unchanged.
Unsubscribe at any time. We do not share your info with third parties. Read our full privacy policy here.