Being healthy is a good New Year’s resolution… but what about your financial health? Here’s how to make a resolution, new year or not, that will make your next year finances healthier than last year’s.
A Bit About Goals
We suggest two principles for any kind of goal setting:
Set goals you need them. If you wait until January to think about your goals, when will you start? It is good to have deadlines, and deadlines for many financial decisions come with the changing of the calendar year. So sit down and figure out your goals before the end of the year.
Be specific. You may indeed want to “save more money” but it can be very difficult to figure out if you reached this when it is so vague. Making a specific goal, such as increasing your savings by one percent before December 2019, you can realistically look where to trim your budget to make this possible.
Six Steps To A Saving Goal
- Create a separate account. Whether you are beefing up your emergency fund or saving up for a new car, having a separate account will allow you to see progress. Banks like ours don’t charge you extra for extra accounts if you maintain a small minimal balance in the account.
- Calculate how much of your disposable income you are actually saving. It is quite common for people to be unaware of the exact amount they are saving. However, in order to properly set goals it is important to know where you stand. Here’s one way to do it: https://www.cnbc.com/2017/08/30/average-american-saves-less-than-5-percent-see-how-you-stack-up.html
- Pick an amount you want to save. And if you are not sure where to start, try ten percent of your income. But that may not be possible for everyone–or maybe you already are saving ten percent of your income. No matter where you are, we suggest increasing your contribution to your savings next year by one percentage point of your disposable income. For most people, this is a reasonable goal.
- Make it automated. If you make $50,000 a year, 10% of your income is $5000/year or $96.15/week. If you get paid weekly, set $97 (might as well make it a round number!) to go from your checking account into your brand new account you just made. If you really want the satisfaction of doing it yourself, make a weekly appointment to sit down and manually transfer the money. (Note: we don’t recommend this but we get that some people do like the ritual).
- Adjust accordingly every three months. You might realize that your savings goal is easy and you can increase it. You might realize that it’s hard and decide to trim your cable bill to help you get to the savings goal more easily. In any case, set up regular checkins with yourself and if it’s hard to save, look for places you can cut your budget… and if it’s easy to save, see if you can increase the amount.
- Celebrate. Once a month, give yourself a small reward for getting to your goal. It doesn’t have to be expensive (or even cost anything at all) but it’s a proven fact that celebrating your accomplishments not only improves your satisfaction but also helps you achieve more. So make a rewards list for your savings and as you hit your marks, celebrate.
Next post, we’ll have some ways to increase your savings if you find yourself stuck. But for now, here’s to making this the best year yet for you and your finances.