With the year-end approaching, it’s a good time to take stock of your finances and plan for next year. If you want to improve your financial situation (and who doesn’t), the best way to begin is to set financial goals. Your goals are personal and should be meaningful to you, so you are motivated to achieve them. To get started, take these steps to put you on the right path.
Review Your Finances Over the Last Year
Did you set goals for the year? If yes, did you achieve them? If not, how did you do financially? How do you feel about your savings, expenses, and debt? What did you do well and what mistakes do you see? By reflecting on the past and present, you can better understand what changes you should make next year.
Prioritize Your Goals
What are your top concerns? Is it saving for a house, paying for college, reducing debt, or something else? You probably have multiple goals, but you should put them in order of importance to you, so you have a general idea of where to focus your efforts. In prioritizing, consider why the goals are meaningful to you and what benefits they offer in the short and longer term. You’re more likely to stick with a financial plan if you can stay focused on what you’re gaining, rather than what you may be giving up. Finally, you should also fit in some key areas like having an emergency fund, saving for retirement, and paying down high-interest debt. These are financial essentials.
Set SMART Goals
You want your financial goals to be SMART (specific, measurable, achievable, relevant, and time-bound). Saying you want to “save for a house” is too vague to be meaningful. Instead, calculate what you can spend on a home and how much you’ll need for a down payment, mortgage, and other expenses. Then figure out how much you must save over the timeframe you chose to get to that amount. Your SMART goal then becomes to save an extra $X per month over the next X months for the purchase and $X per month thereafter to maintain it. To determine the numbers and time period, you must consider your present finances and priorities.
Create a Budget
It’s hard to achieve your goals without a plan and a budget is at the core of that plan. First, determine your income and expenses. Then, consider what adjustments to spending you must make to get to where you want to be and how to allocate your funds to different priorities. You should also start monitoring your finances closely if you aren’t already doing so. Automate savings by having a designated amount automatically transferred into a savings account. You can do the same with debt payments. This way when you look at your bank balance, you’ll see what’s left after specific funds are taken out for your goals.
Leave Room for Enjoyment
Don’t try to live with an austere budget with no room for fun. Set aside money for things that make you happy; just do it in moderation.
Prepare for Setbacks
If this is the first time you’re goal planning or budgeting, you’re bound to face challenges. Deal with unexpected costs by revisiting your goals and budget. Remember, even if you don’t achieve all your objectives, you’ve taken steps to improve and move in the right direction.
Celebrate Your Achievements
The advantage of SMART goals is that it makes it easy to see when you’ve accomplished a goal. Did you hit your monthly target? Are you halfway to saving enough for a new car? Congratulate yourself for your hard work.
Consult a Professional
If you don’t feel confident in setting goals and developing a budget, seek out professional help. As a daily money manager, I help clients manage their day-to-day finances like creating a budget, tracking their income and expenses, organizing tax records, and other tasks. I teach clients what to do if they want to manage it themselves or handle these responsibilities for them if they don’t have the time or desire to do it. I also work with their financial planner, accountant, and other advisors as needed to keep them on the right track.
Setting financial goals for the new year will help pave the way toward a successful year and long-term financial health.
Contact me for a free consultation.
