It never fails. We start a new year with motivation, inspiration and perspiration. Only to have life catch up with us and zoom by. Another year is ending, and a new one is beginning. If you’re thinking about what you’d like to accomplish in 2018, it’s very likely that something finance related is on the list. I want 2018 to be your best money year yet, and in order for that to happen, a game plan to set your money goals is must.
You may be wondering why I’m talking about money goals a few weeks before the new year. The reason is because the sooner you start thinking about your goals, the sooner you can plan them out. Planning them before January 1st rolls around means you will be ready to go, not scrambling to figure your goals out. I’m going to walk you through an exercise to help you set your money goals for the new year and create a plan to achieve them.
How to Set Your Money Goals
First, S.M.A.R.T Goals
In November 1981, George T. Doran published a paper for Management Review magazine that outlined the importance of objectives and the difficulty of setting them. Originally this article was written for managers, but the S.M.A.R.T criteria translates into personal goal setting as well. You’ve likely already heard of setting S.M.A.R.T goals, and if you haven’t, you won’t forget it after this article! Here is what it means to set S.M.A.R.T goals:
Specific – target a specific area for improvement.
Measurable – quantify or at least suggest an indicator of progress.
Achievable – specify how the goal will be achieved
Realistic – state what results can realistically be achieved, given available resources.
Time-related – specify when the result(s) can be achieved.
While the S.M.A.R.T criteria applies to any area of goal-setting, we are going to look at it from a financial perspective. When setting your money goals, you want to ensure each of the criteria is met. Get specific with your particular goal. Think about how you can track your progress to ensure you reach your goal. Specify what you are going to do to reach your goal. Be realistic with your goal, in relation to your current situation. Give yourself a timeframe for when you can achieve that goal, remembering to be realist to your situation. Here is an example:
Notice that the regular goal is very vague. It certainly expresses what the intention is, however it does not provide any specifics on how, when, or what will be done to achieve the goal. The S.M.A.R.T goal, on the other hand, provides a specific target date, a specific and realistic plan of attack, and a means of tracking progress. Each money goal that you set for the new year should be as specific as the S.M.A.R.T goal listed above.
Know Your Priorities When You Set Your Money Goals
Before you decide on what you would like to accomplish in the new year, it’s important to make sure that your financial priorities are covered. Before saving for your dream car, you need to have an emergency fund. Before starting your business, you need to be-debt free. Although these financial priorities may seem boring, they are an absolute necessity to ensure you reach your other goals with ease. Here are a few financial priorities you will want to have completed before setting your money goals. If these priorities are not covered, then they should be your money goals for the new year.
- An emergency fund of 3-6 months’ worth of expenses OR if you are paying off high-interest debt, then a minimum emergency fund of $1,000.
- No high-interest debt (credit cards, personal loans).
- 10-15% contributed to an IRA or 401k/403b retirement plan.
Those 3 things should be at the top of your goal list, if you haven’t accomplished them yet. I outline all 3 of those priorities, plus 7 other things that every woman needs to be on top of her finances in the Money Matters Toolkit.
Know Your Situation
Now that you understand how specific your money goals need to be, and what your first priorities should be, you can start setting your money goals. When setting your money goals, you must have a clear understanding of your current financial situation. A budget that outlines your income, expenses, savings and debt will certainly come in handy.
When you have a clean understanding of your financial situation, you can be REALISTIC with your goals. If you budget shows you that you only $500 left over each month, then your goal should be to save $2,000 a month. You can create your goals around your situation. If you aren’t happy with what your budget is showing you, you have two options: 1) Cut back your expenses or 2) Increase your income. One thing to keep in mind is that you can only cut back your expenses so much, at some point, you will need to increase your income to get where you want to go faster.
Lastly, it certainly is possible to save for multiple goals at the same time. While it is possible to do so, it can be more difficult, depending on your situation. If you just don’t have enough money to go around to everything you want to accomplish, start with the most important goal.
Track Your Progress
Once you’ve set specific, measurable, achievable, realistic, and timely goals, you need a method for tracking your progress. It’s one thing to set a goal, but it’s another to follow through with that goal. The great thing about money goals is that they can be tracked by what’s happening in your accounts. If your goal is to pay off debt, I suggest creating a spreadsheet and tracking your balances at the end of every month. If your goal is to build savings, track how much your savings grows each month.
There are apps, software programs, notebooks, and spreadsheets that can all be used to help you keep tabs on your goals. Find the tracking method that works best for your personality so you can be consistent with it. Tracking will help you stay accountable and keep you motivated along the way. Depending on your goals, it may not be an easy journey, but anything is possible.
Related: Setting Achievable Resolutions
I’ve walked you through the most important steps to follow when setting your money goals for the new year. I challenge you to think of 1-3 major money goals that you want to work on in the new year. Remember, there’s so much more to goals than just setting them. You need to get specific and follow through with the goals you set. Have you thought about what you want to accomplish in the new year financially? What are some of your money goals? Post a comment below to share!