What are your personal goals for 2018? How will your financial planning support you in achieving them? While you have your New Year's cap on, take this chance to make the personal financial resolutions that will get you closer to the life you want.
1. Define your Objectives – The SMART model is an effective guide for defining objectives that are:
- Specific - so that you know exactly what you are aiming for and how you are going to get there;
- Measurable - enabling you to keep track of your progress and assess how closely you have really met your goal;
- Achievable - so that you can take on the challenge with confidence and not become overwhelmed by a task that is too ambitious;
- Relevant - it is easy to come up with an array of good, creative objectives in a free brainstorm, but all of them may not get you to your desired end goal; and
- Time-bound - deadlines place healthy pressure on you to succeed.
For example, "I want to buy a house someday" is a fine goal, but vague. "I want to save $10,000 this year for a future home purchase" is better. "I want to save $10,000 in down payment money this year toward a future home purchase by increasing my investment income by $5,000 and cutting my expenses by $5,000" is better still. You get the idea.
2. Assess your Situation Honestly and Holistically – Review your financial progress over the last year. Are you particularly proud of one or two achievements? Do you wish you could go back and consider any decisions over again? Take a balanced look at your experiences and be frank with yourself about your financial situation and how you got here. Make sure your financial habits correspond to the rest of your lifestyle aspirations.
It is a good idea to calculate or review your current net worth. Assessing all your assets and liabilities provides a useful benchmarking tool to prioritize your spending and saving habits going forward. Have you recently undergone a significant life change, such as having a child? Are you, for instance, expecting to retire in the coming year?
Ask yourself some of these questions:
- Income – How much did you make last year, and do you expect that amount to grow? Moreover, can you realistically help it grow?
- Expenses – How much did you spend last year? Did you have unusual expenses? Are your expenses trending in any direction? Do you have a monthly budget? (If not, you should.) Are your retirement savings included in your regular budget? How much cash do you keep for emergencies, and how much do you need? (Six months of expenses is a typical goal).
- Assets – What are your assets and investments, what is their current value, and what portion is liquid? What are some plausible scenarios for investment returns during the year? And are you making maximum use of tax-advantaged investments like a 401(k), IRA, or 529 College Savings Plan? Finally, is your portfolio in need of re-balancing because of changes in your life (such as nearing retirement) or changes in the financial markets?
- Debts and Credit – Do you have upcoming future debts (like paying for a college education) and have you planned for them? Do you have outstanding loans aside from a mortgage? What is your average credit card debt and do you pay it off regularly? What is your credit score? You can check your credit score and read your credit report for free within minutes using Credit Manager by Money Tips.
- Insurance – Do you have the proper coverage for your family and possessions? Are your premiums reasonable for the coverage you have, or can you negotiate a better deal?
If you don't know the answer to these questions, start with the simple goal of finding them out. This is an important part of setting realistic goals. Don't be surprised if you redefine or sharpen your goals after performing this exercise.
3. Explore Your Options – In this digital era, the range and volume of financial resources can seem overwhelming. It might even feel like sipping water from a fire hose! While self-education is a good place to start, don't hesitate to consult with professionals when exploring the full range of investment products and strategies that are available to you. The only stupid question is the one you didn't ask that costs you valuable dollars in the end.
4. Make a Plan and Stick with It – This is the toughest and most important part of any resolution. Whatever goal you have, it's likely to require significant financial discipline. That's why, in consultation with your financial advisors, you should formalize your plan in writing. Give yourself frequent reminders of your goals throughout the year and review your progress. To keep you from extra spending, tie a string around your finger or stick notes to your forehead if you have to (although we would recommend different memory tricks).
5. Start Small – With the excitement of the New Year, you may be tempted to make extreme changes to your lifestyle. Don't set yourself up for failure by trying to alter your saving and spending habits drastically. Take it step by step. For example, if your goal is to save money by taking your own lunch to work rather than eating out, start by brown-bagging it one day a week. Once that is easy, increase it to twice a week, and so on.
These are just a few of the many simple steps that can help you live a more prosperous 2018. Our professional community members are always here on MoneyTips.com to discuss more ideas to help you meet your financial goals. As Benjamin Franklin said, "Diligence is the mother of good luck". We wish you all the best for the year ahead.
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