By Ali Goldstein
The end of the year is a time to reflect — to listen to your most-played songs on Spotify, watch your Facebook year-in-review and purge the list of people you follow on Instagram — but it’s also an ideal time to set financial goals for the year ahead.
While many New Year’s goals involve money (for example, a “healthy eating” resolution can include eating out less, cooking more and spending less money overall on food), other kinds of goals are solely focused on financial readiness. These are the kinds of goals that will get you on the path to financial wellness and can lead to building wealth!
Matthew Angel, advice director of personal finance at USAA, reminds us that achieving goals starts by “breaking your goal down into its smallest components — like playing a video game. With a game, you don’t start with the hardest puzzle. You start with the easiest, celebrate your win, and then move on to the next level.”
Ready to set financial goals for the new year, but not sure where to start? In this two-part series, we’ll first help you figure out how to create financial goals that hit the sweet spot between “pie in the sky” dreaming versus the kind of task you might find on a daily checklist. In part two, we’ll explore how to set financial goals tailored to your age or stage in life.
What Makes a Good Goal?
The best goals are SMART: specific, measurable, attainable, relevant and time-based. It’s a simple acronym to turn what might otherwise be vague goal-setting into an actionable plan with real results.
Here’s a little more info on getting SMART:
Specific goals should be well-defined and focused so they not only address the what, but also the why. This is one of the most important ways to set financial goals that can be broken down into clear next steps. For example, “Start a college tuition account for my eldest child” is more specific than “send my kids to college,” because it’s easier to see how the first goal can trigger a clear next step (visit a financial institution to start a college savings account) than the second.
When it comes to setting specific financial goals, don’t just use your words: get visual! As Angel suggests, “Print out a picture of where you want to go or what you want to do, and put it on the refrigerator as a visual reminder of the goal you want to achieve.” Plus, a high-traffic spot like the fridge will issue a constant reminder, keeping your goal top of mind and boosting motivation to help you stick to it.
Measurable goals are trackable goals, meaning they include metrics that will indicate how you will measure progress. And tracking your progress helps you feel more in control, which is especially important when you set financial goals, which can often feel intimidating. When setting financial goals, think about how you might measure progress, like: exactly how much money are you going to set aside each week, or month, to save for a future college fund, new home, or retirement? Think about it — achieving a goal without a measurable outcome is like tracking weight loss without a scale. The numbers simply won’t add up!
Here’s an example from Matthew Angel on goal measurement: Say you’re a 24-year-old single, enlisted male with a dream of visiting Europe in the next year. Angel advises that one way to make your goal measurable is to “…attach a number and then work your way backward toward the amount you need to save. So, if your trip will cost $5,000 and you want to travel in the next calendar year — do the math! $5000 divided by 12 months equals saving about $420 per month. Want to speed things up? The more money you save each month, the sooner you get to go on your trip.”
Attainable goals are achievable. Set yourself up for success by creating motivation momentum through pinpointing small (but regular) milestones along the way toward a larger change. Modest successes can have a big impact on confidence, which can be the fuel you need to keep going, especially if your financial goals are long-term in nature. One example of an attainable goal? Eliminate or reduce one spending habit in January, then start contributing that amount to your 401k in February. Even if the amount is not huge, the impact this has on developing new behavioral habits is definitely big and may help you challenge yourself to find another spending category to cut down in March to increase contributions in April.
Another way to set financial goals that are attainable is through accountability: communicate your goal to someone else. “If you have a spouse or significant other, it’s so important that you share your goal with that person,” says Angel. “And even if you’re single, and it can be helpful to tell someone. Because one, it helps you stay honest; and two, it’s someone you share financial responsibilities with, you’re going to have to work together to achieve whatever your goal might be.”
Relevant goals are based on the current conditions and realities of your life: the right here and right now. Goals that don’t take into account the factors that directly and indirectly impact your life today (like your current job, family situation and financial status) might require major lifestyle changes to even get started, which can impede your momentum and seriously derail your confidence.
Over the years, Angel has learned that, “If you go really fast without thinking about what you’re doing, or how you’re going to do it, often times that won’t lead to the profit or the success that you’re looking for in the long term.” In other words, it’s more important that you accept and observe the reality of your current situation to set financial goals that are relevant to when you’ll make your first step.
Time-based goals have deadlines. If your goals are too open-ended, it’s likely they can drag on indefinitely, especially if you’re prone to procrastination. Of course, it’s important to have flexibility (because life happens), but make sure when you set financial goals that you’re giving yourself a specific period of time. That way, you can break up a time range into beginning, middle and end stages so you can schedule milestones to accomplish certain tasks, check in to make sure you’re still on track, or if life throws you a serious curveball, deciding whether your goals should be revised or reworked altogether.
For example: if you are trying to save $5,000 for a vacation by December, but suddenly lose your job in March, it might be better to put that savings plan on pause in case you need those funds to go towards paying essential bills while you find another job.
If this example sounds familiar to you and where you are right now, check out USAA’s free, online budgeting tool to help simplify your finances and as you set financial goals that fit your lifestyle.
So, now that you know what it takes to set SMART financial goals, take your first best pass at creating your own! Check out this example of a SMART goal to get started:
“Starting in January, I will automatically deduct $500 each month into a savings account in order to build a $6,000 emergency fund balance by next January.”
Still feel like you need more info? Check out Part 2 where we’ll explore other factors to help identify the kind of financial goals customized to your age and lifestyle.
Matthew Angel serves as an advice director at USAA, focusing on the personal finance tenants of short-term saving and home advice. Matthew holds professional credentials including a CERTIFIED FINANCIAL PLANNER™ designation, AAMS® and a Master’s in Business Administration from the University of Texas San Antonio. Matthew’s history at USAA includes seven years serving members as a financial planner and leading teams of financial professionals to help members achieve financial security. Outside of work, Matthew enjoys hunting and riding motorcycles, and is a proud husband and father to four kids.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
USAA means United Services Automobile Association and its affiliates. Financial advice provided by USAA Financial Advisors, Inc. (FAI), a registered broker-dealer, USAA Investment Management Company (IMCO), a registered broker-dealer and investment adviser, and for insurance, USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # OE36312). Investment products and services offered by IMCO and FAI. Life insurance and annuities provided by USAA Life Insurance Co., San Antonio, TX, and in NY by USAA Life Insurance Co of New York, Highland falls, NY. Other life and health insurance from select companies offered through USAA Life General Agency, Inc. (known in CA (license #0782231) and in NY as USAA Health and Life Insurance Agency). Banking products offered by USAA Federal Savings Bank and USAA Savings Bank, both FDIC insured. Trust services provided by USAA Federal Savings Bank.
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