The new year is basically upon us, and it’s always a popular time to resolve to do better with our lives.
With 27% of folks surveyed stating a financial resolution for the new year, it’s fantastic to see that financial goals are no exception.
There’s just one problem.
According to US News & World Report, 80% of new years resolutions fail by February. So all those hopes and dreams of a brighter financial future won’t even last long enough to see President’s day.
But that doesn’t have to be you, and in this article, we’ll discuss the types of financial goals, how to set achievable goals that you can’t mess up, and 5 financial goals everyone should have (and a few extras).
So let’s get it started.
What is an example of a financial goal?
Financial goals are targets, usually driven by specific future financial needs that define how you spend, save, give, invest or manage your money.
Traditionally, examples of financial goals include:
- Save for a down payment on a house or car
- Save for the kid’s college fund
- Improve your credit score
- Pay off credit card debt
These are big hairy goals!
In order for your goal to be achievable, we should tweak these so they are better goals and we can do that by applying a S.M.A.R.T strategy.
Setting S.M.A.R.T Goals: How to set achievable financial goals
I’m sure you’ve heard of S.M.A.R.T goals as a means of creating achievable goals. It works for businesses and it works the same way for financial goals as well.
S – Specific
If you’re going to have any hope of actually achieving your goal, then you need to have a clear, precise understanding of what you want.
Setting a goal of ‘getting out of debt’ is a clear goal, but not precise or specific. Does it include credit card debt? student loans? car loans? mortgage? debt to parents? and how much debt needs to be cleared off for it to be a success?
When being specific – think about the who, what, when where and why of your goal. Be as detailed as you need to get clear on the ultimate result you want.
Example: I plan to lower my credit card utilization
M – Measurable
You need to be able to determine when you have reached your goal, and setting a tangible number is helpful in identifying how far you are away from your goal, and what your ultimate goal is.
Example: Plan to pay down $10,000 of credit card debt
A – Attainable
This one sometimes get a bad wrap for forcing people to think small. No one is saying you can’t think up a massively awesome goal that scares you, but in order for your goal to be attainable, you need to be able to carry out the specific habits that would be necessary to achieve the goal.
so part of making a goal attainable is if there are habits or systems that can be used to help you.
Good habits and systems are simple and easy.
Meaning they are easy to understand, easy to complete, and easy to implement
You can determine good habits by asking yourself – what is the smallest piece of work I can do that will get me closer to my goal?
Example: I will make an extra $200 above the minimum payment($300) every month.
It’s easy to understand (extra payments help lower your debt), it’s easy to complete (just requires and extra payment) and easy to implement (it can be totally automated so you don’t even have to think about it.
R – Relateable or Relevant
Your financial goal is much more likely to be successful if it’s something you care about.
There’s no point in putting ‘save for a house’ as your financial goal if you don’t have any real desire to buy a house.
Your goal needs to be in line with your needs, your goals, and your values.
T – Time-based
Anyone can set a goal, but if it lacks any sort of real time-frame, chances are you’re not going to succeed. In the past, I have used time-based goals to help me stay on target, but lately, I find that giving a specific time/date gives me anxiety.
So I set my goal, and focus on the habits to get there, not on the timeframe left to achieve it.
Example: I will pay an extra $200 over the $300 minimum every month on my credit card to pay off $10,000 of credit card debt in 20 months.
The S.M.A.R.T goal strategy has proven to be effective for a lot of folks, but I like to go a step further and set ‘non-value’ goals.
Set ‘Feel Good’ Goals
Your money impacts all aspects of your life and well being, so don’t just focus on the number, focus on the emotions too.
Set goals that pertain to your money and your emotional health. For example, instead of simply saying ‘I want to be debt-free’ instead of setting a goal that says, ‘I want to have less anxiety about my debt’.
And there you have it, how to make financial goals that you’ll actually accomplish.
Now if you’re new to personal finance then here are some financial goals to get you started, that everyone should have on their list for 2020.
5 Financial Goals Everyone Should Set for 2020
For 2020, everyone should have the following financial goals if they haven’t achieved them already:
- An emergency fund – at least $2,500 if working on debt, and if you’re already debt-free, then between 3 -6 months if double income and between 6 -9 months if single. A great place to start saving is in a high yield savings account.
- Start saving for retirement – at least the minimum for company match if working for an employer, or as much as possible in an individual retirement account (IRA) if working for yourself.
- Become properly insured – health insurance, home, and auto insurance are the bare minimums to protect yourself and your finances in the event of an issue (and staying legal on the road). If you have dependents under 21, then you should have term life insurance to provide for your family once you are gone.
- A plan to pay off consumer debt – either actively working a current plan, or have plans to start paying down consumer debt
- Focus on what you want – you have to decide the life you want for yourself and your family – not how everyone else says you need to live.
There you have it!
Now you know how to create S.M.A.R.T financial goals so you can be successful in 2020 and 5 of the top financial goals everyone should have on their list!
What goals or new years resolutions do you have for 2020?