Financial Goal Setting Tips for the New Year

Financial goal setting doesn’t come naturally for many. Here’s how to set meaningful financial goals—and achieve them—in the year ahead.  

Many people view each new year as a clean slate—an opportunity to let go of bad habits and set positive goals for the year ahead. Yet once our enthusiasm wanes, old habits tend to creep back in, making it more difficult to achieve what we set out to do. Perhaps that’s why so many of us make lofty New Year’s resolutions, only to revert to our old ways by Valentine’s Day.

Yet as the saying goes, “A goal without a plan is just a wish.” If your New Year’s goals include improving your financial health and wellbeing, having a sound plan in place is essential. Fortunately, there are steps you can take to boost your chances of success in the new year.

When it comes to financial goal setting, consider the following tips and best practices:

#1: Identify Your Starting Point

Effective financial goal setting requires a clear understanding of your current financial situation.

Indeed, establishing a baseline doesn’t just help you set more realistic goals. It also helps you assess your progress as you work towards achieving them.

If you’re unclear about the current state of your finances, don’t worry. Here are a few key activities and metrics you can review to better understand your starting point:

Spending

According to a recent survey by OppLoans, 73% of Americans say they don’t regularly follow a budget. The good news is you don’t necessarily need a formal budget to succeed financially. However, you do need to manage your spending.

First, review your spending activity from the last year. An easy way to do this is to download an expense tracker app like Mint or Goodbudget. These apps connect to your bank account and credit cards to record and categorize your expenses, making it easier to see where your money goes each month.

Once you have a better understanding of your spending habits, you can identify potential opportunities for improvement.

Earnings

Of course, you’ll need to consider your spending habits within the context of your overall income. Ultimately, financial success is only possible if you spend less than you earn. Otherwise, headwinds like debt and savings shortfalls can make financial goal setting less than inspiring.

In addition, your current income can serve as a helpful baseline for setting financial goals. Moreover, these tips for maximizing your earnings potential may help you identify where to focus your efforts next year.

Net Worth

Your net worth can provide a powerful snapshot of your current financial health. If you’re making good choices with your money like saving, paying down debt, and sticking to your investment plan, your net worth will improve over time. But if you tend to spend more than you earn or save, your net worth will suffer.

To calculate your net worth, first tally up the value of all your assets—for example, your home and other property, investment accounts, and anything else you own that has financial value. Then do the same for any debts you owe, whether you have a mortgage, outstanding loans, or lingering credit card debt.

The difference between these two numbers is your current net worth. This number can be an extremely helpful financial goal setting tool, especially if you can identify trends in your net worth over time.

#2: Focus on Setting Three to Five Financial Goals

Setting one or two financial goals for the year ahead may be sufficient if your personal finances are in good shape. On the other hand, setting too many goals can be overwhelming, no matter the state of your finances.

For many people, the sweet spot for financial goal setting is focusing on three to five goals. That way you can address the key components of financial success—for example, spending, saving, investing, and eliminating debt—without setting yourself up for failure from the get-go.

You can use your findings from the previous step to help you set meaningful financial goals. For instance, you may realize you’ve been overspending in certain areas. Thus, one of your goals may be to rein in your spending and contribute the difference to an emergency fund instead.

Or you may find that you’re in more debt than you thought. If so, you can use a debt payoff calculator to help you set realistic goals for paying down your balances.

Once you’ve decided on your goals, be sure to write them down and keep them visible. According to one popular study, you’re 42% more likely to achieve your goals just by writing them down.

#3: Make Sure Your Goals Are SMART

Setting SMART goals helps ensure your financial goals are clear and achievable. In other words, make sure your goals are Specific, Measurable, Achievable, Relevant, and Time-Bound (SMART).

For example, suppose one of your goals for next year is to reduce your overall debt. Although this is a noble goal, it’s too vague to be meaningful.

For financial goal setting to be effective, you need to set clear parameters around your goals. In this case, setting a goal to pay down your high-interest credit card balances by the end of next year may be better than simply saying you want to reduce your debt. Plus, the clearer your goals, the easier it is to create a plan to achieve them.

#4: Develop a Plan to Achieve Your Financial Goals

Indeed, financial goal setting doesn’t end once you identify your goals. The next step is to develop a clear plan for how you’re going to achieve them. This will serve as your roadmap throughout the year and help you assess your progress along the way.

Building on the example above, suppose your goal is to pay down your high-interest credit card balances by the end of next year. If you’ve successfully calculated your net worth, you already have a clear picture of what you owe.

From there, you can work backwards to develop a plan. In other words, how much will you need to pay towards credit card debt each month to eliminate your balances by the end of the year? And will you have enough free cash on hand to contribute that amount each month? (If not, you may need to set a more realistic goal.)

No matter your financial goals, creating a plan will help you replace old habits with better ones and guide you in making smarter financial decisions.

#5: Set Yourself Up for Success

Financial goal setting doesn’t need to be difficult. Nor does achieving your financial goals. Here are a few best practices to set yourself up for success:

• Think small. This may sound counterintuitive, but the best goals don’t require you to overhaul your entire life. Rather, small, consistent actions tend to produce big results over time. In fact, in his book Atomic Habits, James Clear highlights that if you can improve your habits by 1 percent each day for one year, you’ll end up thirty-seven times better by the end of the year. In other words, aim for progress—not perfection.
• Automate what you can. If you’ve ever opted for takeout at the end of a long workday instead of the healthy meal you planned to prepare, then you’ve experienced decision fatigue. Indeed, the quality of our decisions tends to deteriorate after a day full of decision-making. Thus, if you must constantly decide to make smart money choices, you’re less likely to do it if you have competing priorities. To improve your chances of success, it’s often helpful to automate as many financial decisions as you can.
• Acknowledge your wins. Lastly, financial goal setting doesn’t mean you can’t enjoy your money. It’s simply an opportunity to create better habits and make smarter decisions with your money more often than not. Be sure to celebrate your wins as you work towards achieving your financial goals. Acknowledging your successes—no matter how big or small—will help you stay motivated throughout the year.

Financial goal setting is an ongoing process. An experienced financial advisor can help.

You don’t have to go it alone when it comes to financial goal setting and planning. An experienced wealth management firm like SageMint Wealth can help you set meaningful goals and develop a plan to achieve them. We can also help you proactively identify opportunities to improve your financial wellbeing and help you make smart decisions for your future every step of the way.

SageMint Wealth is a wealth management firm for high-net-worth individuals, families, and business owners. We have a passion for supporting women, the LGBTQ+ community, and individuals in the technology space. If you’d like to learn more about how we help our clients and if we may be the right fit for your wealth management needs, please contact us. We’d love to hear from you.