A new year has started. We counted down to midnight, popped the champagne, regretted not going to bed earlier, and now it's time to think about the upcoming year.
I'm going to teach you how to set financial goals, then give you eight financial goals you can accomplish this year to set yourself up for future financial success.
How to Create Realistic Financial Goals
Setting and achieving financial goals isn't that different from other goals, and you can use some strategies that may sound familiar to you.
1) Clarify Your Values
Think about what three to five values are most important to you. This could be something like family, security, achievement, or (in my case) fun.
With your values in mind, picture what you want your life to look like both long- and short-term. If art is one of your values, maybe you want to go orchestra concerts or take watercolor classes. If exploration and trying new experiences is important to you, then maybe you want to be able to live abroad for a few months. If you value success, maybe you want to achieve a certain level in your career.
Whatever your values are, think about what it would look like to live in alignment with them, and then set both long- and short-term financial goals to do that. For example, if you want to go to the orchestra more, make sure you save enough to afford tickets. If you wanna get a promotion at your company, maybe you want to get a master's degree.
Whatever your goal is, it may require some saving and some financial planning, so the more time you give yourself to set both long-term and short-term goals, the better off you'll be, and the more likely you'll actually achieve that goal.
2) Make Your Goal SMART
The key to achieving any goal is make it SMART: Specific, Measurable, Attainable, Relevant, and Time-bound.
- Specific: Be clear and detailed on what you want to accomplish and how you're going to accomplish it. Instead of saying, “I want to work on my finances,” say, “Every Wednesday morning, I'm going to make a cup of coffee, sit down on the back porch, and spend an hour reviewing my spending habits, looking at my bank accounts, and tracking my finance habits and progress.” Creating a plan will help you focus and stick to your goals.
- Measurable: Set a number so you can look back and be able to objectively determine whether you hit the goal or not. Instead of saying, “I want to improve my credit score,” say, “I want to raise my credit score by 50 points.”
- Attainable: Make sure you have the necessary skills and resources to accomplish your goals. Otherwise, you're just setting yourself up for failure.
- Relevant: A relevant goal can answer “yes” to the following questions: 1) Is it worthwhile for you? 2) Is this the right time? 3) Does it align with your other values and your other goals?
- Timebound: Set a deadline. For New Year's resolutions, typically you plan to accomplish your goals by the end of the year, but for big goals like paying off your student loans, you may want to aim for five years from now…or whatever is reasonable based on your debt and your income.
3) Write Down Your Goals
Writing down goals — and placing them in a place where you will see them regularly — is extremely useful. Write down your goals, how you're going to achieve them, and what you're gonna do to celebrate once you actually achieve them. (We're big into rewarding yourself around here.)
4) Automate as Much as Possible
The less hands-on work you have to do, the easier building new habits and achieving goals is. Thankfully, with financial goals, it's often easy to automate. For example, if you set a goal of saving 15% of your income every month this year, you could set up auto-savings so that money goes straight from your paycheck into your savings account.
8 Financial Goals to Pursue This Year
Now that we've covered how to set yourself up to achieve your financial goals, I'm gonna give you eight specific goals that you can and should achieve this year to set yourself up for success.
1) Develop a Regular, Enjoyable Weekly Money Ritual
What is a weekly money ritual? It's time that you set aside every week to focus on your finances. This can include checking your bank accounts, reviewing your statements for money that you've spent, setting up a budget, and checking in on your financial goals, for example.
The key to sticking to this is making it time that you enjoy. In the Million Dollar Year, we have our members find a time during the week, whether it's Sunday morning or Wednesday evening, and plan out how they're going to make their ritual enjoyable.
Some women+ like to sit down with a cup of tea, light candles, listen to music, and reward themselves with chocolate afterward. You should do whatever will make the time feel luxurious. Taking care of your finances should feel like self-care — because that's exactly what it is!
2) Improve Your Financial Literacy
If you're having trouble thinking of what financial goals you want to set, this could be a good place to start. Ask yourself what aspects of finances confuse or scare you the most and start by researching those things.
3) Get Your Spending Under Control
If you want to accomplish any long-term financial goals, the first thing you need to do is spend less than you make every month. Otherwise, you'll find yourself perpetually in debt.
We recommend following the 50/30/20 budget. In this budget, you spend 50% of your monthly income on your needs, 30% on wants, and you save 20% of your monthly take-home income (i.e., after taxes).
4) Build an Emergency Fund
An emergency fund is a financial safety net. It's money that you put aside for life's unexpected events and expenses. For instance, if your car broke down or your fridge broke, you'd use your emergency fund to pay for the problem so you don't get stuck in a bind or have to go into debt or pull money out of your investments.
5) Pay Off Your Credit Card Debt
Credit card companies charge sky-high interest rates that are designed — unfortunately — to keep you in debt, so make 2022, the year that you break your debt cycle.
Before you can do almost anything financially, like start to invest or even save a full emergency fund, you have to pay off your high-interest rate debt. Otherwise it's like trying to bail water out of a sinking boat with a bucket that has a hole in the bottom; you're never gonna be able to get ahead because debt interest always costs more than you can earn.
If you need help figuring out how to pay off debt, sign up for our free Five Days to Debt-Free mini-course.
6) Improve Your Credit Score
If you don't have credit card debt, then this is a great time to work on building up your credit score. Your credit score is important if you want to buy a house, rent an apartment, secure a car loan, even get hired for a job. Your credit score basically tells people who are considering getting into business with you how trustworthy you are, so it's important to build a good score.
If you want to learn more about what steps you can take to build a good credit score, we have a handy little checklist that you can download and follow.
7) Start Investing
If you want to build wealth, it's absolutely essential that you start creating avenues of passive income ASAP. But keep in mind what I said earlier: you don't want to invest until you've paid off your high-interest rate debt and built up an emergency fund.
If you're ready to start investing, we recommend starting with index funds. You can even use really specific target date funds, which are a mix of stocks and bonds based on your age. These automatically adjust over time to lower risk as you get older.
All you have to do is select the year you're planning to retire — let's say 2050. Then Google “target date fund 2050” and find a fund that's perfect for you.
But pay attention to the fees, also known as expense ratios. You shouldn't pay more than 0.15% in fees for any of those funds. If you want to learn more about how to start investing, be sure to check out our free masterclass on investing for beginners.
8) Get Your Retirement Savings on Track
No matter how young or old you are, it's important to consistently set aside money for retirement. Trust me, it's going to be here faster than you expect, and you want to be prepared.
As a general rule, if you're in your twenties, save 15% of your pre-tax income each month. If you're just starting to save for retirement in your thirties, you wanna save 20% of your pre-tax income. And if you're starting to save for retirement in your forties or your fifties, you save even more because your money has less time to grow before retirement.
You can use an online retirement calculator to figure out exactly how much money you should be saving each month, which makes it much easier.
Those are all the financial goals we recommend for 2022! And remember, at the start of the year, it's important to take time to reflect on where you've been, be thankful for where you are, and set ambitious goals for the future.
If you're ready to make this year the year that you take control of your finances, you should definitely consider our signature program, the Million Dollar Year. It's an incredible program to support people through taking control of their financial life.
In the meantime, leave a comment telling me one of your financial goals for this year! Bonus points if it's one from my list. Best of luck!