The Fresh Start Effect

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Fresh Start Effect by Rose Fres Fausto

Before the eventful year of 2020 ended, we saw a lot of memes wishing for it to end
already, as if all our 2020 problems would go away at the stroke of 12 midnight of December 31, 2020.

Now, here we are. It’s the New Year! The question is, “Have all the problems disappeared?” Chances are, they’re still there. However, there is that magic of a fresh start.

Wharton professor and behavioral economist Katherine Milkman did a study on this titled “The Fresh Start Effect: Temporal Landmarks Motivate Aspirational Behavior.”

The study found that “fresh starts” on specific event dates enable people to be more effective at setting and achieving behavioral-changing goals. These temporal landmarks include birthdays, anniversaries, the beginning of a school year, and of course, New Year.

New Year is the most widely used temporal landmark. It also helps that, unlike birthdays and anniversaries that have different dates for different people, we all have the same New Year—at least to those who use the Gregorian calendar.

For 2021, I expect a concerted worldwide effort to use the power of the Fresh Start Effect. No one was spared the trauma of the COVID-19 pandemic that brought down businesses, claimed lives, and put us all in quarantine. We all need the psychological power of this clean slate to go on with our lives.

When it comes to handling our money, let’s use this fresh start to renew our commitment to put an order in our personal finances.

  1. Start the year with your balance sheet. Make an inventory of all your assets and list them down. List down all your liabilities. Deduct your total liabilities from your total assets and you come up with your net asset value, also known as net worth. Update this on a quarterly basis.
  2. Beginning this year, be very vigilant of what you spend and how much you earn. This is your income statement. This will help you figure out if you’re spending too much. If there is a negative gap between your earnings and your expenses, do something about it now! Update this on a monthly basis.
  3. Automate your savings so you can religiously practice the first basic law of money which is to pay yourself first. Make sure you have sufficient emergency fund equivalent to six to twelve months of your expenses.
  4. Once you complete your emergency fund, automate your investing so you can invest for your old self whether the market is up or down.
  5. If you’re the breadwinner, make sure you have protection funds in the form of term life insurance.
  6. Once numbers 3, 4, and 5 are in place, start setting aside for your dream funds.
  7. If you have debts, retire them before you even start investing because chances are, the interest rates of your debts are way higher than the returns you can get from your investments.
  8. Make sure that all of the above are aligned with your core values.

I hope that the above help you in taking advantage of the Fresh Start Effect in living a much better 2021.

Cheers to high FQ! F

*FQ stands for Financial Intelligence Quotient.

*This excerpt is taken from Feast Magazine January 2021 issue.*

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