| Posted in Financial Literacy
How to Properly Set Financial Goals
We admit it: Most of us really dislike setting financial goals. Come to think of it, we also dread setting New Year’s resolutions. That would explain why so many people—23%—abandon their resolutions within the first week and 43% abandon them by the end of January. To top it off, only 9% of people complete their resolutions at all. It would seem, then, that making resolutions is an uphill battle from the start.
But just because resolutions can be tough to follow through on doesn’t mean they’re impossible, or that they shouldn’t be done. Far from it—there is great value in setting goals and trying our best to stick to them. The key is setting realistic goals that reflect where we’re at in our lives while also sufficiently challenging ourselves to achieve more. It’s about discovering what we can accomplish given our mindset and our values. And nothing is more important than our financial well-being. In fact, 55% of Americans describe their financial situation as “only fair” or “poor”—that’s a majority. 50% also report their financial situation is worsening rather than improving. This means we have a lot of room for improvement and a clear goal: to improve our finances!
Setting good financial resolutions comes down to a few factors:
- Is it doable?
- Will it help me and my life? Will it help others?
- Is it good for me?
- Do I have the support infrastructure (family, friends, etc.) in place to achieve it?
Answering yes to any one of these is a good enough reason to set some new financial goals for the coming year. Once we know what we want to fix in our lives and understand the financial implications of our decisions, we can set realistic and specific resolutions, goals, benchmarks, and timeframes.
What Are Some Good Financial Resolutions?
Let’s start with the biggest one: save more money.
Every year, we hear friends, loved ones, neighbors, and even survey respondents in news articles talk about how they want to save more money. In fact, it’s the main resolution for Americans in 2024. With the price of gas and groceries often rising past our financial comfort level, it’s no surprise we want to secure our nest eggs against inflation and fluctuation.
The 50/30/20 rule helps with this. Spend 50% of your income on “needs”, 30% on “wants”, and 20% on “savings” automatically each month. Of course, these numbers can be adjusted a little based on your personal situation, such as saving more and spending less on “wants”, or if you have changes in income. The most important thing is to allocate a set amount to savings each month. Many banks offer interest-bearing savings accounts that can help your savings grow even faster. This 50/30/20 plan goes well with another important financial resolution: budgeting.
Budgeting can be difficult, but it’s well worth it, especially when you set a budget and stick to it. Budgeting can help you see where your money is really going versus where it should be going. Let’s say you have another large financial issue that many people deal with: debt. You might want to pay off some of those credit cards and improve your credit score in the process. Budgeting lets you see how much you could set aside for that purpose versus how much you’re currently not setting aside, and helps you see the problem.
Some good budgeting tips include:
- Be honest with your current spending habits and what you’d like to be spending
- Use software or tools that work for you
- Keep all your bills and receipts where you can find them and use them
- Focus on clearing out debt, especially with high-interest cards or loans
- Save as much as you can, when you can
- Be clear about your “wants” and your “needs”, then prioritize accordingly
Paying off credit cards is a great financial goal. Cards with high interest rates can rack up unnecessary charges that keep you from fulfilling your dream of financial freedom. It is money wasted. Focus on aggressively saving to pay off the most high-interest cards first.
Then, once that’s paid off, focus on paying off the others following the same process. This can take a long time depending on your amount of debt, but just because we make a financial resolution in 2024 doesn’t mean we have to complete it in 2024—it’s worth it to take the time to do it correctly.
One way to avoid accruing further debt is to pay off credit card charges on a timely basis. Don’t wait longer than the billing cycle to pay them off—do it as soon as possible, in full. For your financial budgeting, if it helps, use the 50/30/20 rule for this. For example, paying off a credit card can be classified as a “need” and spent accordingly, provided you also meet your other monthly “needs”. If you are dead set on achieving this goal (we commend you!), your 30% “wants” can be partially or fully allocated to paying off credit card debt. Paying off this debt and keeping current on paid charges will also help improve your credit score. Setting up automatic payments is an easy way to help you make the payments without a lot of stress.
You can find ways to increase your revenue or reduce costs. Many of us spend too much on things we like at the moment rather than considering their long-term cost or our real financial goals. Finding ways to trim our budgets can help with how much we have to pay and where our income goes. Similarly, finding ways to generate more income can help us pay off things faster, and gives us more wiggle room in our 50/30/20 scenario.
If you need a little extra help, it could be worth it to seek out financial advice from a professional. Accountants, advisors, banks, and experts of all kinds exist to help guide your finances in the right direction, should you choose to take this route. Having someone in your corner who knows how to help clients just like you can help you see improvements and monitor your progress.
Resolutions for Profit
Of course, none of these scenarios work unless you commit to them. We mentioned many people abandon their resolutions early—but certainly not all. In fact, those who complete their resolutions will likely be happier. Some may be healthier and wealthier as well! In the case of financial goals, setting big resolutions and sticking to them has countless benefits for both your financial present and your financial future.
Don’t worry about when you make your resolution—start now. Keeping to a solid financial path will put you on the road to prosperity in 2024 and beyond.