New Year, New Financial Goals: 8 Steps to Setting & Achieving Your Money Resolutions for the Year Ahead
Setting and achieving financial goals can seem like a daunting mountain to climb.
We all have dreams of financial stability, yet the path often feels obscured by obstacles and uncertainties. But here’s the truth…
Accomplishing your financial aspirations isn’t merely about procuring more funds. Instead, it’s about understanding how money works, how money makes you feel, setting clear objectives, and taking consistent action towards those targets.
The difference between those who achieve their financial dreams and those who don’t? Knowledge, planning, discipline – and yes, sometimes even a little bit of luck.
1. Recognize the Importance of Setting Financial Goals
The journey towards achieving financial health begins with setting attainable financial goals and understanding why it is important to you. These targets, whether short-term or long-term, serve as a compass guiding your spending habits and savings efforts.
In other words, well-defined objectives keep you motivated to stay on track with your financial plans. Achieving smaller targets can build momentum for larger ones, such as building wealth or paying off student loans. Think of climbing a staircase: each step is important to reach the next level. The same is true here, with small goals being the steps to reach your larger goal.
A Proactive Approach Towards Potential Challenges
An integral part of goal setting involves foreseeing potential hurdles that might disrupt your path. By anticipating these issues beforehand, you’re better equipped to devise strategies that help navigate through them without straying too far from the original plan.
To be more proactive in your financial planning, consider incorporating contingency plans into your strategy. These plans offer a fallback option if your original plan encounters unexpected difficulties. They can be as simple as diversifying your investments to reduce risk or as complex as a detailed strategy for handling a sudden job loss.
Another recommended approach is conducting structured brainstorming sessions with your accountability partner. This can involve discussing potential challenges and working together to devise suitable solutions. This collaborative effort not only provides fresh perspectives but also fosters a sense of camaraderie and shared responsibility towards achieving your financial goals.
Moreover, don’t hesitate to research company and government resources that could assist you in your financial journey. Many organizations offer guidance and assistance programs designed to help individuals navigate various financial challenges. These resources can provide invaluable insights and support, helping you stay on track towards your financial goals.
This proactive strategy strengthens your ability to withstand difficulties while moving towards your mid-term and long-term financial goals, like putting aside money for retirement or a child’s college tuition.
Plus, embracing this aspect can help with improving your credit score, which is vital when planning large-scale investments like saving for a down payment to buy a house.
2. Prioritize Your Financial Goals: A Crucial Step
Setting financial goals is about more than just writing down what you desire; it’s determining which goals are the most important and which should be addressed first.
This might be intimidating since all of your objectives are essential in their own right. But remember, we’re working with limited resources here.
Prioritization is the key for effective resource management while still keeping an eye on that long-term vision of yours.
One way to prioritize and visualize your financial goals is by creating a financial vision board. Start by placing smaller, achievable wins at the top and progress towards bigger, loftier goals at the bottom. This visual representation can serve as a constant reminder and motivation, helping you stay focused and committed to your financial journey.
Another effective strategy is to rank your financial goals in order of importance to you. This way, you have a clear understanding of what needs to be achieved first and can plan your resources accordingly.
Sharing your financial goals with family and friends can also be beneficial. It promotes accountability and provides an additional layer of motivation to achieve them. If you’re sharing finances with a partner, it’s particularly crucial that you both agree on the ranking for savings and other financial goals. This ensures that you’re both working towards the same objectives and can support each other effectively along the way.
Differentiating Short-Term, Mid-Term, and Long-Term Goals
To start off this journey towards prioritization, let’s break down our financial objectives into three categories: short-term, mid-term, and long-term, so we can understand them better.
Short term goals, such as building up an emergency savings fund, getting rid of credit card debt, or planning your next vacation, usually span over a year. For further insights into these immediate targets, Investopedia offers valuable financial resources.
Moving onto mid-term goals – these have a longer time frame and include goals such as saving for a new apartment, your child’s college education, or buying that dream car. These goals generally have timelines ranging from one to five years. Consistently building a savings account coupled with smart investments can help achieve these faster.
Last but definitely not least are our long-term goals. Retirement planning or purchasing property are great examples of long-term goals, as they require sustained effort over time but offer significant rewards once accomplished.
The keywords here are patience and consistency. And yes, as Your Financial Therapist, I’ll always be by your side through it all!
3. Build a Strong Financial Foundation
Your financial health journey begins with the basics. It’s like building a house – you need to lay down solid groundwork before constructing your dream home. You need a blueprint – a plan.
The cornerstone of this foundation should be an emergency fund as well as prioritizing high-interest debt repayment, especially credit card balances.
Laying Down Your Emergency Fund
An emergency fund is your financial safety net against unexpected expenses or sudden income loss. Think of it as insurance for your finances – ideally covering three to six months’ worth of living costs. Having this money tucked aside will help you sleep easier knowing you have a safety net.
This buffer is the best way to help prevent dipping into savings meant for other goals or accumulating more debt when life throws curveballs at you. Create a separate account or maybe even put this emergency fund in another bank so you don’t see it everyday. And let’s face it, curveballs are inevitable in life.
Tackling High-Interest Debt Head-On
Financial stress often stems from past due credit card payments. What seemed like a great idea at the moment could have a long lasting impact on your health and wealth with high interest payments.
Prioritizing paying off debts that carry high interest rates, such as credit cards, is also a good idea when it comes to setting up a strong financial base. By eliminating these liabilities, not only do you reduce your overall debt load, but you also free up resources that could be better utilized towards saving and investing, feel more confident in your finances and ultimately help you to build wealth over time.
Kickstarting Retirement Savings Early
Retirement may sound far off, but it will be here faster than we know it, especially when it comes to money. The earlier you start building for this day with small amounts, the more your future self will thank you.
Additionally, saving consistently for retirement plays an integral role in maintaining long-term fiscal well-being. It also creates good financial habits and oftentimes your employer will have a matching program (hello free money).
The earlier you can start contributing towards your retirement funds, the longer compound interest gets to work its magic on them. This will allow your investments to yield returns (extra cash) not just on the initial investment, but also on accumulated earnings from previous periods.
Compound Interest isn’t called the eighth wonder of the world without reason. When coupled with the early initiation of consistent contributions toward one’s retirement plan, it has the potential to significantly bolster nest egg growth, meaning it can play a pivotal role in your long term financial goals, including retiring early.
For a deeper understanding of compound interest, scroll down to #8 below, where we take a closer look at what this concept means and how to take advantage of it.
4. Create a Plan to Achieve Your Financial Goals
Whether you create this by yourself, with your family, or with a trusted professional like me, Erika Wasserman, Your Financial Therapist, it’s important to write out your specific financial goals, communicate them to others for accountability, and create a flexible plan to help you achieve them on good days and bad ones.
For help with creating your financial strategy, click here to book a free consultation with me!
Adjusting Spending Habits
Once you’ve created your personalized financial plan, it’s crucial to analyze your spending habits. This will allow you to uncover areas where you might be splurging excessively. Common culprits often include frequent dining out experiences, last minute purchases, and subscriptions that are rarely used.
However, slicing unnecessary expenditures doesn’t mean compromising on life’s pleasures. Instead, it could mean opting for home-cooked meals or waiting for restaurant week over expensive restaurant visits or transitioning from high-cost cable TV to affordable streaming platforms and only keeping the ones you use ;).
Additionally, an integral part of crafting a well-rounded financial plan includes setting timelines for each goal realization. Having clear timeframes helps establish realistic expectations while keeping your motivation levels high throughout this voyage towards improved financial health.
5. Regularly Review Your Financial Goals
Set a date with yourself (and your accountability partner) each month as you would for a big project at work. Put it into your calendar, block the time, and have an agenda for each month.
Take a Financial Wellness day each year to do an annual review of your finances, insurance policies, update your account information, review your past goals and create new ones. Have a check in each year like you do with the doctor for your body’s health and do an annual financial health visit.
6. Learn to Navigate Through Setbacks
You can’t climb a mountain if it is smooth. The pebbles, rocks, and boulders help you have the ability to climb the mountain, and the same is true with your financial relationship.
You’re bound to hit some bumps along the way, such as unexpected expenses like car repairs or medical bills, or even changes in income which can temporarily throw off your plans.
Rather than viewing these hiccups as failures, you can choose to see them as learning opportunities and stepping stones for growth (Forbes Advisor). These setbacks can provide valuable insights into what needs adjusting in order for you to stay on track with setting and achieving your financial goals.
If setbacks have thrown you off course from creating a realistic spending, saving, and investing plan, don’t fret. Instead, take time to understand why this happened and tweak accordingly to your new situation.
As Your Financial Therapist, I, Erika Wasserman, am here to guide you through the complexities of money management and to help you bounce back from setbacks and set you on the track to success.
I offer personalized advice tailored to your unique financial situation and goals while providing a therapeutic approach to finances, helping you understand your relationship with money, identifying any financial anxieties or fears, and providing strategies to overcome them.
This holistic approach ensures not only your financial health but also your overall well-being.
If you’re ready to take control of your financial future, I invite you to book a free exploratory call with me.
Together, we’ll discuss your current financial situation, your goals, and how I can assist you in achieving them.
7. Understand Your Credit Score’s Role in Achieving Financial Goals
When it comes to achieving financial goals, your credit score plays a starring role. This three-digit number is more than just an indicator of past behavior; it’s the key that unlocks many doors on your journey towards financial health.
In a nutshell, having a good credit score can open the door to more advantageous loan rates and better insurance terms. It might even make you more attractive in job applications.
So how do we keep this all-important figure looking healthy?
Paying Bills On Time: A Non-Negotiable Habit
First things first, timely bill payments are crucial. Whether it’s rent or mortgage installments, utility bills or those pesky subscription services – they all count towards building up a reliable payment history which contributes significantly to your FICO Score. Experian, one of the leading credit reporting agencies, explains why this matters so much. A hint here is to use autopay for your main bills or set reminders on your phone for specific days of the month to pay bills.
In short, your consistency here shows lenders that you’re trustworthy when borrowing money – something they love seeing.
Cutting Down Credit Card Debt
Besides paying bills promptly, keeping control over revolving debt (mostly from our beloved plastic friends, but also from other types of debt) is another essential step toward maintaining high scores. High utilization ratios don’t sit well with lenders because these signal higher risk.
Finding ways like settling balances each month or using balance transfer options with lesser interests could help manage your debt payments effectively without having them run wild. Also, don’t wait til the payment is due to pay down credit card debt as interest is charged daily. If you “saved” $20 by not going out to lunch that day, move the $20 to the credit card bill. Small payments over time add up and reduces fees.
8. Invest To Build Wealth And Retire Early
If you’re dreaming of an early retirement, investing is your golden ticket. It’s a powerful tool that can help grow your wealth over time and set the stage for financial freedom.
The beauty of investing lies in its flexibility; there are numerous options to suit various risk appetites depending on the stage of life you’re in. For those who enjoy living on the edge, stocks offer high returns but come with substantial risks. If stability is more up your alley, bonds, mutual funds, or a Roth IRA might be worth considering.
Before you begin investing, research. Research people (aka who do you want to invest with), types of products to invest in, and timelines you want to see returns in or cash out without penalties. Think of investing as a new hobby. Find a coach, read a few books, talk to people who have been doing it awhile, and go at your own pace.
A Closer Look at Compound Interest
We’ve already mentioned compound interest and you’ve likely heard of this concept before. It’s often referred to as “interest on interest.” But what does this concept actually entail?
Simply put, it means any profit made from an investment gets reinvested rather than withdrawn, which allows for exponential growth over time. To illustrate this, let’s take a real-world example.
Imagine you invested $1,000 at the age of 30 in a savings account with a 6% annual interest rate compounded yearly. Without adding any additional funds to it, by the time you reach the age of 70, that initial investment would have grown to approximately $10,000, thanks to the power of compound interest.
This increase is not linear but exponential, meaning the growth accelerates over time due to earning interest on both the original amount and the accumulated interest. This example perfectly demonstrates why compound interest is often dubbed the “eighth wonder of the world” and a powerful tool for wealth accumulation.
For a more detailed explanation and visual representation of how compound interest works, watch this YouTube video. It provides an enlightening breakdown of the mechanics behind this financial principle.
Making Real Estate Work For You
Beyond traditional stock market investments, real estate also offers promising opportunities for building wealth while increasing your cash flow with options like rental properties. Whether flipping houses or renting out apartments suits you better will depend largely on personal preferences and capabilities and risk tolerance.
Note: Always do thorough research before venturing into new investment territories. Financial success comes hand-in-hand with informed decisions.
To wrap things up: when setting long-term financial goals like retiring early, don’t just save money – make that saved money generate additional income by strategically choosing suitable investment avenues. Remember: every dollar invested today will bring you one step closer to your dream goal tomorrow.
FAQs About Setting & Achieving Financial Goals
What are some examples of financial goals?
Examples include saving for retirement, building an emergency fund, paying off debt, buying a home or car, and investing to grow wealth. Goals should include a dollar amount and a timeframe.
What is the importance of financial goals?
Financial goals provide direction and motivation. They help manage spending efficiently while guiding efforts towards wealth creation and future security.
What are effective financial goals?
An effective financial goal is specific, measurable, achievable, relevant to your lifestyle needs, and has a defined timeline (known as a SMART goal).
How do you set good financial goals?
To set good financial goals, start by identifying what’s important to you financially. Prioritize these objectives, then create a realistic plan that includes budgeting and regular reviews.
In conclusion, setting and effectively managing your financial goals is the cornerstone of reaching financial freedom. With the right mindset, tools, and strategies, you can transform your financial future and unlock a wealth of opportunities.
Whether your big financial goals involve saving for retirement, investing to build wealth, or anything in between, it’s vital to start today.
Remember, the journey to financial health is a marathon, not a sprint.
If you’re ready to take your financial well-being to the next level, I encourage you to take that first step.
My name is Erika Wasserman, Your Financial Therapist, and I’m here to guide you on this journey while giving you peace of mind about your finances.
Book your free exploratory call with me today and let’s start working together to achieve your financial goals.