Going into the new year, it’s tradition to set intentions or resolutions for the months ahead, but does this genuinely make a difference when it comes to your finances?
The complicated thing about resolutions seems to be that most of us don’t keep them. Close to 91% of people who make resolutions abandon them at some point – often within the first two months. Goals, however, differ from resolutions. People who set goals for themselves tend to be much more successful at following through and achieving them.
Resolutions are often statements, and typically reflect a broad and general idea. “I want to save money this year,” or “I want to eat less sugar.”
Goals are more specific, which is helpful for establishing a clear path forward. For example, rather than simply saying you want to save money in 2024, you might determine how much you want to save, and what you’re saving toward as a more effective motivator.
Let’s look at the difference in action:
Resolution: “I want to save money this year”
Goal: “I want to save $10,000 this year so I can take my family on a trip to Europe.”
The power of goal-setting is directly correlated to how financially confident people feel. It seems that the goal itself, and working to achieve it, can markedly improve your confidence in your own ability to influence your financial situation. A recent study found that 83% of people who choose to set financial goals feel better about their finances in just one year.
As you start to think about 2024 and all your plans for the new year, here are nine tips for setting and achieving your financial goals:
1. Reflect on the Past Year
Before jumping into a new year with new goals, it’s important to assess your financial journey over the previous 12 months. A great place to start is by compiling all your financial paperwork and records from the past year. This might include statements from your checking and savings accounts, credit cards, retirement accounts, brokerage accounts, health savings account (HSA), 529 plan, insurance policies, and anything else that makes up your financial ecosystem.
While you potentially already have a good idea of your spending and savings habits – especially if most of it is automated – it’s still helpful to go through your documents again with the deliberate intention of building a snapshot of your financial year. You may be surprised at what you forgot happened just a few months ago.
As you review your 2023 financial journey, identify successes (hitting a savings goal, paying off a loan, etc.) and any setbacks (taking on additional debt, falling short of your contribution limits, pulling money from your emergency fund for non-emergencies, etc.).
This exercise isn’t designed to make you feel guilty or self-conscious about your money habits. Instead, you can empower yourself with what you learn from 2023 to set realistic goals for the new year.
2. Define Clear and Specific Goals
It’s worth emphasizing again that the key to success is to be clear and specific about your goals. Saying you want to ‘save enough to buy a second home’ is vague, and lacks a motivational finish line. When you give yourself something to look forward to, it can become much easier to forego short-term indulgence in favor of long-term achievements. Try to define what you want using monetary amounts and specific desires that money will help you achieve. Remember, money isn’t the actual goal — it’s the tool to get there.
Let’s say you want to pay off the remaining $40,000 of a car loan. While $40,000 is how much money you need to achieve your goal, the goal is unburdening yourself from this debt. Think about the freedom of owning your car outright, and all the other ways you might spend that money each month if it wasn’t being funneled to a car payment.
You’ll likely find it helpful to create milestones and track your progress. Focus on smaller, more easily achievable ones to begin with, which can help you build and maintain the motivation to keep moving forward toward bigger efforts.
3. Create a Realistic Plan
To help achieve your financial goals, create plan – one that considers all aspects of your financial life. Working with your financial advisor, you can discuss ways to prioritize your money goals within your financial reality. Perhaps it makes sense to automatically defer a portion of your paycheck into a separate savings account. Or, if you’re looking to reduce debt, you and your advisor can determine a specific and separate amount to put toward the principal each month.
A common and effective system for setting goals is to follow the SMART method:
- Specific: Determining what you want to accomplish and how you’ll do it.
- Measurable: How will you measure your progress, and how will you know when you’ve accomplished your goal?
- Achievable: Your goal should be realistic and reasonably achievable based on your money habits, income, debts, and other factors.
- Relevant: Think about why you’re setting this goal and how it plays into your bigger financial picture.
- Time-Bound: What is your timeline for achieving this goal?
4. Prioritize Debt Reduction
The more money you pay in interest on debts, the less cash flow is going toward your savings or investment goals. While you may not have much in the way of unsecured, high-interest debt (such as credit cards or personal loans) you may still be paying down the mortgage on your home or an investment property, a business loan, or perhaps a home equity line of credit (HELOC).
If you’re interested in reducing debt in 2024, you’ll want to consider a strategy that makes sense for your unique situation.
Two of the most common debt reduction strategies are called the “snowball” method and the “avalanche” method.
In this scenario, you would pay off the smallest loan first, no matter the interest rate. Once that loan is paid off, the money you were using to pay for that loan goes toward paying off the next smallest loan. Just as a snowball gets larger as it rolls down a mountain, the amount of debt you’re eliminating grows steadily over time. The snowball method can be highly motivating because you can potentially achieve each milestone (such as fully paying off a loan) relatively quickly.
Rather than look at the loan size, the avalanche method uses the interest rate of your loans to determine which one should be prioritized first. You start with the loan that has the highest interest rate. Once that’s paid off, you move down the list to the loan with the next highest interest rate, and so on. Prioritizing paying off loans with the highest amount of interest could help you save money over time.
However, the avalanche method may feel less rewarding than the snowball method since it doesn’t account for the loan size. It might take much longer to achieve your first milestone this way, even though this method could be more financially beneficial overall.
5. Automate Your Savings
If you aren’t already automating your financial life, consider making this a top priority in 2024. Nearly every aspect of your savings and spending can be tracked and controlled online. Just as your employer automatically defers a portion of your paycheck into a 401(k), you can have your bank automatically transfer money to your savings account. Your brokerage account likely includes this feature, too.
Don’t forget that recurring bills should also be set to autopay, so you don’t risk incurring unnecessary late payments or interest.
6. Track Your Expenses
Suppose you don’t anticipate your income – salary, bonuses, dividends, rental income, etc. – changing much in 2024. In that case, you’ll need to decide where the additional money you’re planning to allocate toward your financial goals will come from. To do this, consider tracking your expenses using an app, spreadsheet, or other tool that will help you increase your financial awareness in real time.
Tracking expenses can help you identify where to cut unnecessary spending. If you tend to eat out more than you realize, making a point to cook at home could help you allocate additional money toward savings. If you’re paying for monthly subscriptions you aren’t using, cancel them and reassign the funds to meeting your goals. Remember, this is all about balancing short-term happiness with long-term achievements.
7. Invest Wisely
The key to building long-term wealth is investing. More specifically: investing in a way that aligns with your tolerance for risk, and your goals. If it’s been a while since you reevaluated your portfolio, or if you’ve taken a do-it-yourself approach to investing, consider speaking with an investment advisor in preparation for the new year. They can help you build a diversified portfolio designed to withstand market volatility and keep you on track to achieving your more long-term goals, such as retirement.
8. Stay Accountable and Adjust Accordingly
You’re human, which means life is full of surprises, mistakes, and unexpected events. It’s essential to keep yourself accountable for achieving your goals, which also might mean adjusting expectations or changing course throughout the year. If you’re discouraged by a setback, or overwhelmed by the scope of what you’re working toward, take a moment to celebrate how far you’ve already come on your financial journey. It’s important to create and acknowledge milestones along the way! Allow yourself to feel rewarded for your hard work throughout the year so you can stay connected to your motivation for continuing.
9. Seek Professional Advice
The most important tip on this list is to work with a financial advisor to set and create a plan for your money goals in 2024. As your financial health partner, advocate, and guide, your advisor will help you be realistic, stay accountable, and adjust as needed.
As we kick off a new year, it’s the perfect time to take actionable steps toward meeting your goals over the next 12 months. To learn more about Abacus and the role we can play in helping you feel financially confident and successful in 2024 and beyond, schedule a free call with one of our financial advisors today.