Why A New Year Goal Is Good

The year 2025 is upon us. Maybe you are cynical and don’t believe that you need the start of a year to change, or at least adjust, certain behavioural patterns. Believe it or not, it actually works.

The start of a year is practically associated with a new time period, and psychologically associated with a new beginning. It is a call for reflection—the desire to leave the past behind, and the promise of a fresh start, with a clean slate.

In psychology, it is known as the Fresh Start Effect that people feel when they are faced with a landmark. Landmark could be a geographical change. We move to a new apartment or city or country. Landmark could be a change in the environment, too. We shift jobs. We switch careers. We get married. We get divorced.

Landmark could also be time based. As I mentioned above, the start of a calendar year; 2025 as of now. It could be the start of a year from your birthday, the start of a month, the start of a decade, or even the start of the financial year (April 1). You get the point? It could be anything that resonates with you. It basically distinguishes the passage of time and creates a new “mental accounting” period.

A new journey begins with renewed optimism and motivation. It helps you to psychologically put the past behind you, and motivates you to aspire for a more organised or disciplined future. Leverage this psychological hack of a landmark to work on yourself and your finances.

The Fresh Start Effect also helps you to take a step back and gain perspective. You look at where you profited over the year gone by, and where you slipped up, and try to figure out what it is that you want to achieve in the coming 12 months.

Make The Fresh Start Relevant

Way back in 2018, Morningstar Chicago came up with a research that revealed a gap between the goals investors initially think they want and the goals that are truly relevant and important to them.

For instance, an investor who recently attended a housewarming party might say that her top financial goal is to buy a house, simply because that’s top of mind and easy to remember. This is a mental shortcut. The individual will focus on readily available information when making judgements about what is important, and overlook other goals that may actually have greater importance on their life. This is concerning because they will ignore goals that are central to their desires.

To prompt more thoughtful goal identification, the researchers came up with a master list of carefully curated goals to enable individuals gain a deeper insight into their overarching long-term aspirations. One can use them to get to what one really desires.

• Be better off than my peers

• Pay for personal self-improvement

• Start investing

• Pay for child’s education

• Stop working

• Dream vacation

• Feel secure about my finances in retirement

• Start a business

• Buy a house

• Feel secure about my present finances

• Feel secure about future medical expenses

• Care for ageing parents

• Give to charity

• Leave inheritance to loved ones

Start From Within

But here is something we often miss when it comes to goal setting. A goal is never an objective. Emotions are involved and one’s personality brings layers of complexity to the decision. So, you need to start by figuring out what you really want.

One of the decisions I made a few years ago was to tilt towards minimalism. That was the goal. And it permeated every single aspect of my life. On the material level, I began to buy less stuff for the house and dispose stuff that I no longer use. I cut down on my wardrobe—shoes, bags, clothes, jewellery.

Simplifying my investment portfolio was just a logical extension. I sold the only real estate I owned. I would never live in that apartment. After paying the society monthly maintenance, tax on the rent, property tax, and upkeep of the apartment, the money being made through rent was not worth it. I sold the portfolio management scheme (PMS) that I had invested in. I also got rid of some stocks that were underperforming and consolidated my portfolio.

What I like about the Fresh Start is that it is very motivational. And when you go for what you deeply desire, there is passion to see it through.

Your goal may be to save more, which is very wise. But there is a yawning gap between theory and practicality. Also, it has a negative vibe to it because it reminds one of the financial inadequacy and the sacrifice needed to attain that amount. But without one, the days will go by, money is spent, and you won’t necessarily get to where you really wanted to go.

You need to spin the narrative to make it work. What is it that you passionately want? What is it that you really want to save for? In doing so, you take away the mental and emotional roadblocks because now the apparent sacrifice is not punitive, but a means to achieving what you dearly long for. Force detail into it.

You want to be healthy. How will that work out? Keep money aside for the gym, a personal trainer or fitness class. You may choose to budget for a dietician. Would you need to have a good pair of sneakers and some clothes for your workouts? Don’t be ambiguous. Get specific.

You want to travel. Have you listed down where you want to go? How much will the visa cost (if it is global)? If you are going on a safari, are you looking at a tour operator to organise the entire trip? Once you make it vivid, motivation to save and plan accordingly kicks in.

Once you stop compartmentalising and realise that every part of your life affects every other part, you will be able to figure out what is of consequence to you.

A runner will not compromise on a good pair of sneakers, but may be more than happy to curb on designer clothes and bags. Another may prefer spending money on gadgets and be totally happy with a minimalist wardrobe. Change your mindset. Stop thinking that you have to spend less. Stop thinking that you have to cut corners. Instead, prioritise your spending so that you can have more of the things that make you happy and bring you pleasure. Spend on what matters. Get as much value as possible out of your money.

Getting clear on what matters to you is not very obvious. But it is you who are working hard to earn money. So let that money serve you well. Put in the thought as to where you want to channelise that money. Start 2025 positively, and with clarity.

By Larissa Fernand, Behavioural Finance Expert