Chris Farrell: Forget the humbug over New Year's resolutions because they can pay off

It's that time of year when most of us make our New Year's resolutions, including money-related ones.

Don't fall for the cynicism or disdain that's too often directed at the exercise. Coming up with resolutions is time well spent.

What's more, since it's probably impossible for most of us not to think about what we want to do better in the coming year, you might as well embrace the process. In that spirit, here is a suggested four-step approach to New Year's resolutions and household finances.

First, introspection pays off. One advantage of reflecting on the past year is you'll realize you probably did meet some major goals during 2022 even if you didn't live up to every one of last year's resolutions. More importantly, reflection offers valuable knowledge about what you would like to change in 2023.

Second, create a list of everything you would like to do when it comes to money in 2023. Your list should include both mundane tasks and ambitious desires. Don't worry about editing yourself at this stage. Go long and go big.

Third, go over your list multiple times. Keep asking yourself which money action on your list would make the most difference to your household finances in 2023 if you followed through. You want to winnow your list to focus on the financial objectives that will truly make a difference.

I would eventually give priority to one goal or perhaps a set of related goals. Examples of a single goal include eliminating credit card debt, setting up a rainy-day fund or finally filling out the paperwork to set up a 529 college savings plan. A classic example of a closely related set of goals is putting together an estate plan — a will, a health care directive and power of attorney.

An additional reason for landing on the most important financial objective is that time is the truly scarce commodity. You want to limit the time demand for accomplishing your goal. Being realistic about time hikes the odds of success.

Fourth, talk about your resolution. Letting your family, friends and close colleagues know about your financial priority for 2023 can dramatically improve the odds of success. Your community will remind you of your resolution. They'll ask you how you're doing. They'll also offer words of encouragement. Harness the power of community and accountability.

Farrell is economics contributor to the Star Tribune, Minnesota Public Radio and American Public Media's "Marketplace."