Setting Financial Goals for the New Year
While you may or may not be the type to enjoy New Year’s resolutions, setting financial goals for the new year is a very different kind of ambition than losing weight or making your bed every day.
Yes, it may be important to cut down on carbohydrates or increase the number of trips you make to the gym each week (of course, you can still do those things), but harnessing the power of focused financial discipline can provide you with practical habits that can serve you for a lifetime. Here are eight straightforward and achievable practices for helping to improve your financial future.
Setting Up a Budget
A great first step is taking note of your monthly net income. That would be your take-home pay or any other income you have. If you work as a freelancer, how much is left after taxes? Next, list all of your expenses, including fixed items such as housing, utilities, transportation, and any regular debt payments, such as loans, credit cards, and insurance.
Don’t forget to keep track of average grocery costs, out-of-pocket medical fees, and discretionary personal spending. Hopefully there’s enough room left in the budget for savings, paying down debt faster, or even investing. The important idea here is to make a budget that works for you and to stay on track.
Tracking What You Spend
It may not seem like it, but the little things can add up. Paying attention to where your money is going helps you when setting financial goals for the New Year by highlighting where you can cut down on spending. Try tracking everything you spend for a week.
For example, a $2, $3, or $4 cup of coffee every day (or even twice a day) can free up anywhere from $40 to $160 a month. That doesn’t mean you have to give up coffee. Maybe there’s coffee at the office or you could bring a Thermos® from home. You could try packing a lunch instead of eating out. The key is finding creative alternatives that you feel comfortable with maintaining in order to save money.
Saving X Amount of Dollars
Saving a little extra each payday can make an impact on your financial planning and provide a surprising asset to your fiscal toolbox. Even if you start by putting only a modest amount aside regularly, the gradual accumulation will inspire you to save more.
As part of setting financial goals, the amount you want to save each pay period will depend on your overall financial status. You will have to complete your budget first and then determine how best to prioritize your spending. High-interest credit cards can be a primary culprit, along with other high-interest debts.
Paying Off Credit Cards
As mentioned, getting a handle on credit card debt is critical in creating healthy New Year’s resolutions you can actually stick to and follow through on. The credit card companies are very adept at convincing people that spending is easy.
The hard part is when the interest rate climbs to an exorbitant level and you become too intimidated to pay more than the minimum. If you have multiple credit cards and you want to break out of these cycles, it may be time to consider consolidating. This can allow you to get on a fixed payment schedule with a target payoff date (rather than an open-ended credit card), hopefully lower your interest rate, and possibly improve your credit score.
Setting Up an Emergency Fund
It’s easy to feel confident when everything is going fine, but having a rainy day fund set aside in an accessible account could mean the difference between getting through a difficult stretch or falling into a much more dire situation.
If you lose your job, encountered a serious health issue, or are met with any number of other unexpected financial challenges, having an emergency fund could make all the difference to your financial wellbeing.
Falling behind on payments could impact your credit or worse. Many financial advisors suggest saving at least three to six months of expenses for emergencies. The important thing is to start saving whatever you can afford on a regular basis.
Saving for Retirement
If you’re thinking about saving for retirement, opening a 401(k) or an IRA should be a top priority. Hopefully, your employer will offer to match your 401(k) contribution up to a certain percentage. This can be especially beneficial because your contributions aren’t taxed on the way in.
Alternatively, if your job does not offer a 401(k) plan, you can set up your own IRA. If you already have one, you can make it a New Year’s resolution to contribute the maximum amount. Currently, 401(k) plans and IRAs have a maximum limit of $18,500 (changing to 19,000 in 2019) and $5,500 for 2018, respectively.
Long Term Financial Planning
While it may seem like you have plenty of time before you need to focus on long-term financial goals, there can be more to it than just saving for retirement. It’s never too early to imagine where your life is headed and what you want to achieve in the future.
This can be anything from owning a home, to raising a family, to starting a business, to becoming debt free, to maximizing your earning power. Envisioning what’s possible can enable you to set practical goals to get you there. Once you’ve outlined a plan it is equally important to revisit your plan regularly and make adjustments as needed.
Deciding on what investments to make can be a part of your overall financial strategy. Most likely you have goals spread throughout all the stages of your life plan and your portfolio should reflect those priorities.
For example, your short term goals (fewer than three years) may include an emergency fund, travel plans or buying a car. You may want these funds to be liquid in order to access them more quickly. For medium and longer term investments (saving for a down payment or retirement etc), you may be able to take some risk, thereby increasing the opportunity for greater returns. It’s always helpful to have some guidance as you establish your investment plans.
All of these options provide a practical way to rethink your financial activities so you can begin developing an overall strategy for building wealth. And the earlier in your career that you start—especially in your 20s and even 30s—the more power your money can provide you over the long run.
Of course it’s never too late to start adopting practical habits for spending, saving, investing and planning. And if you set your mind to it, there’s no limit to the possibilities you can uncover—while maintaining that resolution to go to the gym regularly, too.
How SoFi Can Help
Setting new financial goals for yourself in the new year is the perfect time to consider opening a SoFi automated account.
SoFi can help you put your money to work by providing you with guidance and goal planning from real human advisors, at no additional cost. And using SoFi MoneyTM in addition to or instead of a traditional bank could save you money and help you reach your financial goals sooner.
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