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Use the ‘Fresh Start Effect’ to Reboot Your Financial Life

Money Saving Tips, Personal Finance
Use the 'Fresh Start Effect' to Reboot Your Financial Life

By Eric Toya

Learn more about Eric on NerdWallet’s Ask an Advisor

New Year’s Day is a big deal in my house. We spend the better part of the last days of December preparing a grand feast. On the big day, we host a large gathering of family and friends. I am of Japanese descent and my wife is Filipino, and the feast reflects our backgrounds, including many traditional dishes that symbolize health, prosperity, long life and good luck.

Of course, our cultures are not the only ones with New Year’s Day traditions. Many cultures have traditions and superstitions around food, guests, breaking plates and even pouring molten lead into water. They are all meant to signify or enhance the likelihood of good fortune in money, health and relationships.

Why are such traditions so common around the start of a new year? I believe the answer lies in what behavioral economists call the “Fresh Start Effect,” a term coined by Katherine Milkman, an associate professor at the Wharton School of the University of Pennsylvania. Milkman and her fellow researchers discovered that visits to the gym, Google searches for the word “diet” and a renewed commitment to pursuing goals spiked around landmark dates like birthdays, the beginning of a semester, the beginning of a month and, most of all, the new year.

The researchers write that the turning point date or event marks “the passage of time, creating many new mental accounting periods each year, which relegate past imperfections to a previous period … and thus motivate aspirational behaviors.”

In other words, that old me who didn’t exercise regularly, watched too much TV and mismanaged money is gone. This new version of me will be better.

New Year’s traditions are essentially tools to reinforce the Fresh Start Effect. We know, intellectually, that a kiss at midnight won’t ensure a year of romantic bliss, and eating noodles doesn’t guarantee a long life. But they remind us of the turning of the calendar, and inspire us to begin anew with our best selves.

This fresh-start mindset is especially appealing when we think about our financial lives, because money is such an ingrained, emotional issue, with habits that are hard to break.

While the Fresh Start Effect may be largely a psychological phenomenon, you can apply the principles of a fresh start to your life in more tangible ways. Here are a few tips for creating that new you:

Pay attention to dates

New Year’s Day and your birthday likely won’t pass unnoticed, but some dates, like the first day of spring or the beginning of a new month, just might. Take a moment to remind yourself that it’s a new month or the start of a new season. Set a reminder on your calendar to jump-start the Fresh Start Effect.

When the summer rolls around, set July 1 as your mid-year financial checkup. How have you done on the goals that you set at the beginning of the year? If your goal was to pay off your credit cards by the end of the year, are you halfway there?

Another good one is to mark your “half-birthday.” For some reason, the IRS likes to use your half-birthday; for example, IRA withdrawals no longer carry a penalty as of age 59½. Celebrate your half-birthday in style, and use it as a reminder to check your retirement planning or speak with your financial planner.

Start early

Fresh starts apply to new days, weeks and months, not just new years. Tackle more difficult tasks early in the week or in the morning. The extra fresh-start boost on Monday morning might make that difficult project a bit more manageable.

For an even better head-start — and a budget-friendly one at that — begin your week by preparing a week’s worth of lunches on Sunday night. Typically, willpower has declined by the end of the week, and grabbing take-out or hitting a drive-through restaurant becomes much more tempting. Having your lunch prepared in advance will help you resist. Not only will you eat healthier, but brown-bagging will help you stick to your budget.

Make a change

Consider creating your own fresh start. Extreme examples include changing jobs or moving. Less dramatic actions might include buying a new outfit, joining a gym or hiring a financial planner. Celebrate the anniversary of when you moved to your current city, started your job or met your significant other.

Think of creating a fresh-start moment as an opportunity to break out of day-to-day doldrums. Challenge yourself to learn a new skill or language, meet new people or enjoy a new experience. You might even find yourself checking items off your bucket list!

Make progress toward goals

Taking some proactive action is a great way to sustain a fresh start. Enroll in, or increase your contribution to, your 401(k). Make a plan to pay off your credit cards, or use online budget software to figure out where you can shore up your budget. Buy a healthy eating cookbook. Schedule your workouts on your calendar.

You don’t have to expect blockbuster successes right away. Incremental steps help, too.

>> MORE: Should I save in a 401(k) or an IRA?

Don’t abuse the fresh start

The flip side of the Fresh Start Effect is the “I’ll start my diet tomorrow” effect. Giving yourself permission to behave badly in anticipation of tomorrow’s fresh start will do more harm than good, especially if every tomorrow is a fresh start.

Many people make the mistake of spending today, in anticipation of a year-end bonus or a tax refund. That’s no different than having a second doughnut in the break room with the promise of having a salad tomorrow. Don’t be like Wimpy of “Popeye” fame, who famously promised to pay you Tuesday for a hamburger today.

As you turn the calendar from January to February, take a moment to revisit your New Year’s resolutions. If your commitment to your resolutions has faded, use the beginning of February as an opportunity for another fresh start and take action.

Eric Toya is director of wealth management at Navigoe in Redondo Beach, Calif.


Image via iStock.