HAPPY NEW YEAR! It’s that time of year again…the time where people make resolutions about the next year and what they are going to do (or not do) in every aspect of life. And I am sure that some of those resolutions will deal with personal finance. For years, I made resolutions but that was as far as I went. I didn’t consider the achievability or even write them down. And for years, I failed to keep my resolutions. Three years ago, things changed. I came across this quote, and how I tackled my resolutions changed.
“A DREAM written down with a date becomes a GOAL.
A GOAL broken down into steps becomes a PLAN.
A PLAN backed by ACTION makes your dreams a REALITY.”
Since 2016 I have taken the time each December to write down my goals for the next year. I break the goals into categories, and one category is “Financial”. I track progress during the year and when goals are accomplished I am able to cross them off and develop new goals to tackle. As the new year gets started I thought I would share my method for creating a financial goals list to help you as you get 2019 started off on the right foot!
- DEFINE AND PRIORITIZE FINANCIAL GOALS: The first step you must take is to define and prioritize your financial goals. For my husband and I, our goals are already loosely defined by our budget. Our budget makes it clear where we are currently saving, paying down debt, or investing. After taking our budget into consideration, we write out all of our current short-term and medium-term financial goals. We then prioritize them based on where our lives are headed. Things we consider when prioritizing are outside deadlines (end dates on loans etc.), life goals, and how we would like to grow in the next year.
- ESTIMATE AMOUNTS: Once we have completed step one, it’s time to determine how much needs to be saved over a year to meet each financial goal. In the case of paying down debt, this could be the total amount of payments you are required to make in a 12-month period, it could also consider overpayments if you are trying to reduce debt more quickly. For savings goals, there are two options. If the goal is short-term, or you can complete it in one year, the goal may be buying the item or experience you are saving for. If the goal is more long-term, I usually estimate the amount to save based on the total amount we need for the goal broken down over the number of years before we hope to reach our full goal amount. In other words, if we want to save $50,000 as the down payment for a new home and we are hoping to buy in four years with a current account value of $10,000, we need to save $10,000 a year for the next four years. Once each goal has a target amount, it’s time to move on to step three.
- BREAK AMOUNTS INTO SEGMENTS: Once the total amount necessary to reach each financial goal has been established, it’s time to break the larger goal down into micro-goals. You can select a time segment that works best for you or that makes sense in the context of the goal. Typically, our segments are monthly. This step is key because it gives you your action items that you need to carry out each month to reach your goal. Keeping with the down payment example from above if we need to save $10,000 per year then we need to allocate roughly $834 per month towards reaching this goal. Once I have this amount, I include it as a budget item. This lets me know that each month this goal is already factored in and covered with our budget.
- TRACK PROGRESS: Setting the goal, then breaking it into steps is a great starting point, but to truly move forward you have to track your progress. I have found that tracking monthly keeps me focused.Personally, I create a check list at the start of each month of all bills due and of all financial goals. I include the due date and the amount for each. As I pay the bill or deposit funds towards a goal I am able to check it off the lists. This works for me because I love lists and have them for everything. It also helps my husband because if I am out of town or sick he can go to the list and see what we still need to do and when. If you bullet journal or have a day planner you could track your financial progress there. Even a simple Excel spreadsheet would work. I track annual progress through our Mint account (www.mint.com). Each December I set our goals up with the total target to save/pay down in the next year. When we do our monthly financial check-up with this tracking in place we can see our total progress for the year. The key is to find a tracking system that works for you and stick with it!
- REVIEW AND ADJUST: The final step to this process is to review your goals and adjust. We typically review ours quarterly to see if our goals or prioritization of our goals have changed at all. It also allows us to take market conditions and changing income into consideration and adjust accordingly. The final review comes every December when we sum up and review our progress towards our goals for the previous year.
The beauty of this process is that it can be as simple or as complicated as you make it. But what I have found is by ranking, breaking down, and tracking our goals we are more likely to make progress each year. It feels good to move from a place of making resolutions that I never kept to actively making goals and seeing progress throughout the year and from year to year!
Here’s to 2019…may it be the best year yet!