Setting New Financial Goals That Stick
With each new year comes the tendency to reflect on the previous 12 months and set big ambitious goals for the next year. Whilst our goals should absolutely be ambitious enough so that they motivate us. If they lack direction and focus, the more likely we will fall off the wagon back into our old ways. This is, even more, the case when setting new financial goals or habits.
Our financial goals can often be too vague such as ‘make more money next year’ or ‘buy a home’. If we aren’t specific and focused on what we are going to do, or how we will change our habits to achieve those life goals, we are limiting our progress towards achieving them.
So how should we make changes to our financial habits that will stick? Here are our top 5 tips
Get the foundations right first.
If you don’t already have a fund set aside for unexpected expenses and emergencies, this should be your priority.
It may not sound like the most inspiring goal but first, we must ensure our foundations are set right, otherwise, we will always be on the back foot with any other financial goal we have.
If we are saving towards our other financial goals and suddenly have an unexpected event such as losing your job or a health issue. This could set us back some months or even years. If the funds needed to handle such an event are held in assets that cannot be accessed quickly, this will cause unnecessary distress.
The typical advice is to save at least 6 months of expenditure to handle unexpected events. Whilst this is ideal, save what is a comfortable amount for you in a high-interest cash savings account. Separate it from your general expenditure account so you are not tempted to dip into it.
Set life centred goals that are specific and tangible
Every year there is a different trend of new years’ resolution – Dry January, Veganuary. These are meaningful goals to many people but if we jump onto a trend that doesn’t really have any meaning to us personally, it is unlikely we will stick to it.
The same can be said for financial goals. If we set a goal for example of ‘spending less’ or ‘getting a pay rise’, what are we allocating that to that is meaningful our own life? If we don’t attach the financial goal to something that resonates with our values or isn’t relevant to our own lives, that money may just disappear into our general expenditure at the end of each month.
Is buying a home meaningful to you? Or spending more time travelling? Identify how much you need to do something personal to you and link the amount to that life centred goal.
For example, £60,000 for a down payment on a home or £5000 for travelling to new countries. If the goal is in line with how you personally want to live your ideal life, you’re more likely to keep accountable to it.
Balance achievable goals with scary ones.
We normally set goals because we want to see some kind of change or improvement in our life. If our goals are not ambitious enough how much progress will we make?
It’s important to set some easily achievable goals that we can tick off along the way to keep us motivated.
However, if we want to see real change in our habits, we should set a few big ambitious goals that push us outside of our comfort zone to change our behaviour and keep us engaged over the long term.
Even if in some cases we don’t hit that goal exactly, we are likely to have made more progress than if we had set the bar lower.
When we set ambitious endpoints as our goal, they can sometimes seem unrealistic. For example, ‘I want to retire in 5 years.
If we reframe this and figure out ‘How much do I need to invest each month to have the option of not working in 5 years.’. This objective becomes much more real and manageable.
Always look ahead
No matter what our age, we should always have one eye on the long term, retirement. Too many people now reach retirement age and have not saved enough. In the UK alone today, 50% of people over pension age are claiming state means-tested benefits Source: www.ipe.com. By starting to save for retirement as early as possible, even the smallest amounts of saving per month can see the benefits of compound interest over time.
A study by Fidelity found that in the UK if you started saving for retirement at age 25 you would need to save 13% of your pre-tax income per month to retire comfortably at age 68. By waiting to start at age 35 this increases to 18%. Source: Fidelity International
The goals you set for the coming years or years may take a while to achieve. It’s important to reward yourself along the way to keep the momentum going.
Rewarding yourself for achieving big or small milestones is as much a part of the financial plan as the goals themselves.
For example, have you hit your savings goal a couple of months early? Treat yourself, guilt-free, to a meal at your favourite restaurant!
Setting and reaching financial goals that will make real changes to your life shouldn’t be a daunting task, it should excite you and challenge you. A proper financial planner can work with you to establish life centred financial goals that are meaningful, motivating and achievable. They will also keep you accountable and coach you towards hitting those goals throughout that relationship.
Click here to see more about how working with a life centred financial planner can help you create a plan to realise your goals today.