How to set your financial resolutions for the New Year
Canada Life - Jan 01, 2021
Looking for a New Year’s resolution? Consider your financial goals as part of your plan for 2021
How to plan your financial goals in 2021
You may be thinking about resolutions for a new phase in your life, whether that’s a new calendar year, a milestone birthday, a new job or another life event. Whatever the reason is, it’s always the right time to get on the path to financial health.
What are financial goals?
Financial goals can be both short term and long term. Your short-term financial goal could be to make an extra payment on your mortgage this month, while your long-term financial goal could be to pay off the rest of your student loan within the next 5 years.
Whatever your goals are, it’s important to make SMART financial resolutions, which borrows the “SMART” framework from the business world. Here’s how to break down your goals into SMART resolutions:
- Specific—Don’t just plan to save money. Plan to save $5.46 per day by packing coffee in a travel mug. The more specific you can be, the more likely you will implement your plans.
- Measurable—Since your resolutions are specific, you’ll be able to look back and measure whether you were able to meet them. You can also look at other factors—such as a surprise repair bill or a month of holiday expenses—that caused you to fall over or under your goal. Measuring this allows you to plan manageable goals for the future.
- Attainable—Focus on choices you can make now and on an ongoing basis. You’ll feel more progress toward your goal if your plan empowers you to take immediate action. Create a plan to achieve your financial goals. Do you want to save $10,000 for a car down payment in 6 months? Work back from that timeline and determine what you need to set aside each paycheck.
- Realistic— Setting realistic financial goals is absolutely key to your resolution’s success. If the goal is unrealistic, you likely won’t meet it and will feel discouraged. If you’re not sure what is realistic, start with small resolutions. Take a look at your cash flow to determine what you need to put towards necessities, like bills, rent and food, and what you have left over to save. Once you see the difference you can make, you can mix in some larger resolutions.
- Time-bound—Make sure to set an end date in your plan; the day where you’ll evaluate your plan and make adjustments where needed so you can create a new strategy. This could be at the end of a calendar month or at the end of a pay cycle. Maybe you’ll decide to trim expenses in one area while loosening your budget in another.
How do you stick to financial goals?
It can be difficult to stick to a budget, but you can try these tips to manage finances better.
- Knowledge is power. You’ll need to know where your money goes before you can improve your cash flow. There are many phone apps available to help you track your finances. Look for trends at the end of the week and the end of the month. You may be surprised to see how your hard-earned cash is actually spent!
- Treat it like a sport. There is a psychological aspect when finding ways to handle finances better—similar to sports. Find a partner or teammate who will cheer you on and vice versa. When you find a hack that works, share it with your partner. Like any game, you’ll need to stay focused, recognize your achievements and celebrate your wins.
- Recognize your weaknesses. If you’re wondering how to avoid overspending, planning is key. Spontaneous purchases are what often lead us to unplanned expenses, so be aware of what triggers your overspending and avoid those situations. Retail therapy is a myth, but a long walk in nature has proven mental and physical benefits!
Once you make small adjustments to your routine, these changes quickly become habits and you can look for new ways to save money. But don’t forget to celebrate your success: if you forego eating dinner at restaurants this week, treat yourself to buying a lunch next week. If you’re packing lunch all of next week, treat yourself to a new scarf or a fancy latté.
Never give up!
While you may land outside of your budget from time to time, it’s important to learn from your mistakes and keep trying. If you find it very difficult to set your financial goals or stick to your financial resolutions, your financial security advisor can help.
Need help setting your financial goals? Contact an advisor today.