As the new year approaches, many of us turn our thoughts to what we want to accomplish with our lives. That may include setting financial goals for the new year with an eye toward improving our financial situation and planning for the future.
At Addition Financial, we’re believers in setting financial New Year’s resolutions to help focus our efforts in the areas that we feel are most important. We want the same thing for our members. With that in mind, here are four strategies to set achievable financial goals that will help you build a happy and financially stable life.
Why Is It Important to Set Financial Goals for Yourself?
Setting short- and long-term financial goals is one of the best ways to build good financial habits. With healthy money habits, you can be sure that you won’t be caught without the money to pay for an unexpected expense. You can keep on track with your plans, whether that means buying a house, creating a college fund or retiring early.
A financial goal may be as simple as improving your financial literacy or creating a budget. It could mean finding a financial advisor to help you make the most of your money. It might involve setting money aside every month to make investments and build toward an early retirement. Whichever financial goals you choose, you’ll need to make them specific and achievable.
Research has shown that people who set specific goals are 42% more likely to achieve them, and those who write down and share their goals with friends are 72% more likely to achieve them when compared to people who don’t do those things.
In other words, setting specific financial goals can help you to focus on the things that are most important to you and hold yourself accountable to what you need to do to achieve your goals.
What Are Short-Term and Long-Term Goals and What Are Some Examples?
When it comes to achieving your financial dreams, both short-term and long-term goals can be useful. The primary difference between a short-term goal and a long-term goal is the timeframe to achieve them. For example, a short-term goal might be one that you pursue over the course of a month or several months, while a long-term goal might require years to achieve.
Examples of Short-Term Goals
A short-term financial goal may serve as a stepping stone for one or more long-term goals. Here are some examples of short-term financial goals:
- Create a household budget
- Improve your financial literacy
- Consolidate your credit card debt
- Cancel unwanted subscriptions
- Set up an IRA
These things can all be accomplished quickly. They also have the potential to support other goals. For example, if you cancel unwanted subscriptions, you can use the increased cash flow each month to make regular IRA contributions.
Examples of Long-Term Goals
A long-term financial goal can help you work toward the life you want. Here are a few examples of long-term financial goals you may want to consider:
- Pay down your credit card debt
- Improve your credit score
- Save for a down payment on your first home
- Buy a new car
- Build a college fund for your child
- Create an emergency fund
These long-term goals may take a while to achieve, but you’re more likely to get there if you set a specific goal and make a plan to stick to it.
4 Strategies to Set Financial Goals for the New Year
If goal-setting is the key to financial success, what are some strategies you can use to set financial goals for the new year? Here are four to try.
#1: Start with the Basics
If you’ve never set financial goals before—or even if you have—you’ll want to make sure the basics are covered before you do anything else. Here are a few basics to consider:
- Get a handle on your debt: Whether you’ve got a little debt or a lot, you should make sure you know how much you owe and have a plan to pay it.
- Create an emergency fund: No household should be without six months’ worth of funds to cover necessary expenses. If your financial situation changes, you’ll be secure knowing you have enough money saved to stay afloat.
- Save for retirement: The earlier you begin setting money aside (and investing it) for retirement, the better off you’ll be.
Before you set any other goals, review your financials and determine if any of these things is a concern.
#2: Identify Your Priorities
The next strategy we recommend is to identify your priorities. Any one of the short- or long-term goals we listed as examples could be right for you. Only you can decide. Here are a few questions that might help you identify your financial priorities:
- What are the things that money can help me achieve?
- Which financial dreams do I not want to live without?
- Which long-term financial goals are blocked by short-term issues?
- Which of my goals feels the most achievable?
- Which one feels the most difficult?
Answering these questions can help you focus your attention in the right place. For example, you might identify a goal of buying a home that’s blocked by a low credit score. You can prioritize paying down debt and improving your credit score, both of which will help you qualify for a mortgage when the time comes.
#3: Set SMART Goals
One of the most important things you can do is to set SMART financial goals. As a reminder, a SMART goal is one that is Specific, Measurable, Achievable, Relevant and Time-Bound. The goal of saving for a down payment on a house is not SMART in and of itself. If you set the goal of saving $1,000 per month for the next four years to make a down payment, that might be a SMART goal based on your income and expenses.
We suggest taking your list of priorities and making each one into a SMART goal. You’ll need to work within your income and budget to create realistic plans and timelines for each goal you set.
#4: Work with a Financial Advisor
The lack of a financial plan can decrease your chances of meeting your most essential financial goals. A good financial plan might include a budget, a savings strategy, an investment portfolio and more.
Working with a financial advisor can help you. You may not be sure where to start or what’s reasonable. The right advisor can help you wrap your head around your current financial situation and map the road ahead. Addition Financial offers these services for free to all members.
What Are Common Mistakes to Avoid When Creating Financial Goals?
Here are some of the most common mistakes people make when setting financial goals and some tips to avoid them:
- Not setting SMART goals: You’re a lot less likely to achieve your goals if you don’t make them SMART goals. Make sure that each goal meets the SMART criteria we listed above.
- Setting too many goals: There’s nothing wrong with being ambitious when you’re setting financial goals, but if you set too many goals it may be overwhelming. We suggest prioritizing goals and starting with those that are most important to avoid overdoing it.
- Not creating a plan to reach your goals: Big goals can feel overwhelming. It’s a common mistake for people to set goals without thinking about what’s necessary to achieve them. You can avoid this mistake by creating a concrete plan to help you stay on top of each goal you set.
- Being inflexible with your goals: While it’s difficult to adjust or give up on a goal, the truth is that financial circumstances change. A lack of flexibility can lead to financial hardship, making it unlikely that you’ll achieve your goals. Your best bet is to keep an open mind and be willing to change when necessary.
None of these mistakes is difficult to avoid. The key is to keep an eye on your goals and make sure that you’re not getting off track with them.
Should You Adjust Financial Goals Throughout the Year?
We already mentioned flexibility but it’s important enough to deserve a bit of extra attention. When you set a financial goal, particularly one that’s close to your heart, it can be difficult to turn away from it or adjust it. Despite the difficulty, it may be necessary to do so.
Financial goals can and should be rooted in financial realities. That’s why we mentioned SMART goals. A goal that’s SMART may become unrealistic if you lose your job or encounter unexpected expenses. If and when that happens, flexibility is essential.
We recommend revisiting your financial goals regularly. Every three to six months is frequent enough if you don’t experience any big financial changes. If your financial circumstances change, then you should review your goals immediately and make adjustments to them as needed. For example, if you take a pay cut, you might need to rethink your budget and decrease your monthly savings goal accordingly.
Set Financial Goals with Help from Addition Financial
Setting financial goals can help you get to where you want to be financially. You can save for retirement, buy a house or create a college fund for your kids. The 4 financial goal-setting strategies we’ve listed here can help you set (and achieve) realistic goals for your future.
Are you looking for financial advice? Addition Financial is here to help! Click here to read about MEMBERS Financial Services and book an appointment today.
Posted on Dec 18, 2023
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