You know you should be doing something more with your money, but you’re not sure what.
I get it. I’ve been there.
For a while, I thought I needed to wait for the ‘right’ moment before I could really start maximizing my money. I figured I’d get around to managing it once I started making more of it. Now I realize that logic is like waiting until you’re married to start dating.
Thankfully, I didn’t wait too long to start paying attention to my money… or dating, so this New Year I’ll be getting married, and paying for the wedding in cash. If you’ve been waiting around for a good reason to start setting your own goals, financial or otherwise, let me challenge you to make this New Year it.
Remember Your Goals Are YOURS!
The trick with personal finance goals is that they’re personal. So the financial goals that might be the most effective for you are probably going to be different from the financial goals that are most effective for your parents or your siblings or your coworkers.
To help you prioritize and figure out what you should focus on first, start by taking inventory of your finances. That is, make a list of all of your assets – checking account balances, savings account balances, investment account balances, plus the value of any big-ticket items you own like a home or car and their current value. Then make a list of anything you owe – your debts – student loans, auto loans, credit card balances, etc. Pro-tip: you can easily track all of this information with Mint!
Once you see all of those numbers laid out in front of you, you’ll have a better understanding of where you’re starting from and what you need to focus on first to get to where you want to go.
For example, if you find that your credit card balances are greater than your checking and savings account balances combined, you might want to focus on paying off your debt in the New Year. Or maybe your debts are under control, but you could use more money in your emergency savings fund or your retirement accounts.
The key here is to step back and make an assessment of your full financial picture so you can set financial resolutions for the New Year based on what money moves are going to have the biggest impact for you.
What Do You Want?
The other key ingredient in setting the right financial resolutions for you is defining what you want. And I don’t just mean ‘more money’. We all want to have more money, but we need to be more specific if we hope to be effective with our goals.
Maybe your goal is to save more. If so, define how much more, how you’ll do it and why.
For example, resolving to save an extra $1,000 by June so you can pay for your next vacation in cash is a far more effective resolution than simply saying, ‘I want to save more money.’
So whatever goals you have for the coming year, consider how you can make them more specific. And use your financial inventory numbers to calculate the difference between wherever you are now and wherever you want to be by this time next year. By grounding your financial goals in actual numbers, you can break them down into smaller, more manageable next steps and track your progress throughout the year, making adjustments as necessary.
For example, if you want to save $6,000 in an emergency fund by next New Years and you don’t have any emergency fund savings right now, you can calculate that you’ll need to save $500 each month in order to achieve your goal.
Once you’ve set that goal, you can get even more specific by identifying exactly where in your budget you can free up an additional $500 each month. Maybe it’s by getting a roommate to help reduce your housing costs. Or maybe you can pick up a babysitting gig every other weekend so you can earn the additional income necessary to meet your goals.
Why It’s All About the “Why?”
The more you can ground your financial resolutions in tangible metrics and specific lifestyle changes, the better your chances of success. To help you stay motivated throughout the process, be sure to keep your ‘why’ top of mind.
For example, saving $6,000 just for the sake of having an extra $6,000 in the bank is certainly motivating, but it’s not always enough when the desire to overindulge strikes. So it’s important to always remember why you’re saving or paying down debt or investing.
Maybe it’s because you want to feel like you and your family are protected in case of an emergency. Maybe it’s because you want to quit your job and start your own business. Or maybe, if you’re like me, it’s because you want to pay for your wedding without having to rack up a bunch credit card debt in the process.
Whatever life goals you have for the coming year, setting the right financial resolutions is going to help you afford them. So use that as motivation to stop procrastinating your money goals and start making things happen!