It’s that time of year for looking forward and setting goals – that includes your finances. The first step in pursuing your financial ambitions is understanding where you are, where you want to be, and how to get there. To invest for a better future, you have to know what you aspire that future to look like. It may sound simple, but for many, this can be overwhelming. Everyone’s goals are different, and that’s okay – in fact, that’s normal! You may be saving for marriage, a house, a big adventure, or retirement. There are no right or wrong goals, but there are some key things to keep in mind when making your new year financial resolutions.
Why are financial goals important?
Setting financial goals helps create healthier spending and saving habits and sets a good premise for the year ahead. Making financial goals when you’re young puts you in good stead as you increase your earnings and spending in life. Goal setting is the root of creating a financial plan and allows you to measure and monitor your savings progress. Including your finances in New Year resolutions keeps you more accountable to your broader financial plans by having monthly or annual way markers and helps keep your end goal in mind. It can even help you feel better about your financial situation and increases that sense of financial autonomy – according to Lincoln Financial Group, 83% of Americans who set financial goals feel better about their finances after one year!
What is my financial starting point?
Before making a financial goal, it is essential to understand where you are. This means assessing your in-comings and out-goings – how much you earn versus how much you spend. Those who use budgeting tools often categorize their spending, which helps provide a detailed picture of where all your hard-earned dollars are going. Understanding where your financial energy is going can be critical to informing your new year’s financial resolutions.
Your money’s current ins and outs are the basis for creating a budget that reflects how you live. It’s essential to be realistic about how many times you bring a packed lunch to work and how many subscriptions you redeem cash in the background every month. It can give you a better idea of what you care about and what spending is not aligned with your values, giving you pointers for where to cut spending and increase future savings.
What do I want to achieve with my new year financial goals?
Some goals are important from a need-based perspective to everyone (I.e., retirement), but your new year financial goals should be specific to you. Individual financial goals and the weight of their importance to you are entirely personal. Even if you and your friend are both saving for a house, no two person’s savings plans will be the same. Figuring out what your financial goals are essentially life planning, and everyone leads a different life.
To understand what you want from your goals, a classic visualization exercise will come in handy: where do you see yourself in 2, 5, and 10 years from now? Don’t panic; you don’t need a monetary number. Think more broadly: what is important to you to have in the coming years? Why do you want those things? What is important to you – success, happiness, relaxation? Consider what that might look like for you. The more specific you are, the easier it will be to set a financial plan to achieve them.
How can I achieve my 2023 financial goals?
Get organized.
Your 2023 financial resolutions may be the first financial goals you’ve set, or maybe they’re a refresher of progress markets for your broader financial plan. Either way, organizing your goals by time scale is essential.
- Short term: <1-3 years. The general rule of thumb for short-term goals is that anything you want in less than 3 years should be put into a savings account rather than investing (investment is more of a long-term game). Examples of reasonable short-term goals include making a rainy-day fund and paying off high-interest debt. The focus here is gaining greater financial stability.
- Medium-term: over 3 years. These are goals that you can start investing for as they are beyond the 3-year mark. Mid-term goals are things that fall in the next 5-10 years. For some, that could be saving for a house or a significant travel trip involving a break from employment.
- Long-term: over 10 years – life. Long-term goals are things due beyond 10 years. For most, what comes to mind is retirement. Even if you aren’t sure what retirement looks like, it is good to start putting money towards a retirement fund now and adjust your goals further down the line.
In our article How to Set Your Financial Goals, you can read more in-depth about setting financial goals at a short, medium, and long-term scale.
Get SMART with your goals
You are likely familiar with the term “SMART” goals. This is an effective way to pursue success in your goal setting by being S- specific, M – measurable, A – achievable, R – realistic, and T – time-bound. It is helpful to make your goals more concrete by assigning target dates and measures of progress and leaving room to be ambitious but realistic. It’s okay to dream big, but occasionally you may have to be flexible when unexpected challenges arise. Setting a priority and drilling into this level of detail can provide a bit more purpose than endless savings.
Write down your goals.
So you’ve assessed your finances, visualized your future, and got ideas for your 2023 financial goals – now what? WRITE THEM DOWN! Writing down your plan can help clarify what you want and how you will achieve it. Psychologists have found that those who write down their goals are more likely to achieve them.
Stay flexible.
While accountability and purpose are necessary, life is unpredictable! Nothing you plan for now is guaranteed to come to fruition, and the circumstances you find yourself in may be better or worse than where you are right now. What you want in life might change too. Setting goals is still worth it, but leaving room to shift the goalposts a little is important to maintain momentum. Financial goals are not set in stone, and it is normal (and encouraged) to revise them over time.
On your marks. Get set. Go! 2023 is ready for you – this year, make your financial plan a priority and join America’s wave of financially literate changemakers. Help you to help yourself.
