New year, new you! Every January, people follow the same pattern of setting resolutions—usually to lose a few pounds and save a few dollars—and by the second or third week, those dreams have already been dashed. Sound familiar?
What if this year really was different? Maybe this “new you” would resolve to learn HOW to set reasonable financial goals, instead of randomly picking an amount to save. The biggest issue with resolutions is they often seem so grand in theory but harder to execute or stick to long-term. This year, we’re here to help you better understand how you should be setting your goals, so you can continue meeting them month after month.
It’s important to remember that financial goals are always ongoing. You may have a short-term to-do list, like saving for a vacation or building your emergency fund, but you’ll also want a long-term strategy to ensure your future needs will be met. With that in mind, let’s dive into how to set financial goals.
1. List and prioritize goals
As the famous Julie Andrews said, let’s start at the very beginning! Start by listing out the things you want to accomplish, including things you’re already working on and things you haven’t yet started. While you create this list, you should also think about your reasoning behind these goals.
For example, maybe you want to save up for your first international vacation to visit a bucket-list location. You’ll want to include as much detail about the goal as possible, including how much money is needed, what your current situation is, and what kind of timeline you expect. Including all this information can help you prioritize your financial goals.
2. Work SMART
With your intentions and purpose in mind, it’s time to fully develop your goals. You may have heard of SMART goals, but if you’re not familiar, SMART is an acronym to help set goals, and stands for: Specific, Measurable, Achievable, Realistic, and Timebound.
Let’s go back to the idea of your bucket-list vacation—maybe you want to visit Japan in the spring to see the famous cherry blossoms—specific. You’ve done the research and have an estimated cost in mind, plus a few added dollars for cushion—measurable. You also know you have enough PTO saved up to go on vacation—achievable. Lastly, after looking at your income, savings, and budget, you realize you will have enough money in your travel fund to go on this vacation in six months—realistic and timebound.
Overall, SMART goals aim to create specific and doable goals that you can accomplish or adjust as needed. Having all of these details can help you better visualize your plan—not just the goal, but the steps you’ll take to reach it.
3. Plan it out
Once you’ve fully developed your goals, you’ll want to write them down. This helps you keep your goals clear, while also creating some accountability. If you’re a paper-and-pen kind of person, dedicate a special notebook to your financial planning. Prefer digital options? Create a spreadsheet you can access on your computer and phone to help keep your goals top-of-mind. You can even use an app to help create specific savings goals.
As you’re writing them out, you may start to see an overarching plan come into view. Be sure to review your current financial situation, and examine what you need moving forward so you can better understand how your goals and timelines work together in your overall plan.
If you feel comfortable, you can do this on your own, but you can also work with a financial professional if you’d like more guidance.
4. Get to work on the basics
Wherever you are in your financial journey, make sure your basics are covered. For some, this may start with general financial literacy to help you get a better grasp on the different options available, and what all the terms mean. Or, you may be already be working on some of these financial building blocks, like your emergency or retirement funds. Whether you’re just starting on these goals or feel comfortable with your progress, it’s always a good idea to revisit them to make sure you’re still on track. Plus, these basics can ensure you have the right foundation to accomplish your bigger financial goals.
So what kind of financial building blocks are we talking about?
Build your emergency fund
It’s hard to plan for the unexpected, but an emergency fund can do just that. It’s most often recommended to have three to six months of your living expenses in your emergency fund, but even $500 could keep you from being in debt during a small emergency like car repairs.
Save for retirement
It’s never too early to start saving for retirement. If you haven’t started yet, look into an employer-sponsored plan, plus additional options like a Roth IRA. Or, if you’re self-employed, look for SEP IRA, a Simple IRA, or an individual 401(k). Most importantly, remember to be as consistent as possible with your contributions and be sure to understand the fine print of your accounts.
5. Maintenance
As mentioned in the beginning, it’s crucial to remember that financial goals are always ongoing. Mistakes can happen, and you may need to adjust your goals to get back on track. Or, you may change your priorities, so you want to be sure you are regularly checking in with your goals and the motives behind them. And, since we know you’ll be successfully setting your financial goals this year, you’ll want to set new ones as you make progress along the way.
Key Takeaways:
- Attaching motives to your goals can help you better prioritize them
- Make SMART goals: specific, measurable, achievable, realistic, and timebound
- Be sure you’ve got your basics covered, like an emergency fund and retirement plan
Hitting your financial goals won’t happen overnight—and it’s not a one-and-done situation, either. Be sure to regularly check-in on your goals and progress and remember that you can adjust as needed. If you find you’re successfully hitting some goals but struggling with others, evaluate your motives for setting the goal in the first place and consider resetting if you no longer feel aligned.
