Experts Break Down How To Reach Our Financial Goals In 2023
Here we are again: another year — another chance to kick bad habits and become a better version of ourselves. For those who added life-changing financial to-dos to your list of resolutions — such as paying off your credit card debts or budgeting for a trip to Europe — now is the time to reflect on those goals and see if you're on the right track. The reason why you should make a point of evaluating your set goals regularly is that most New Year's resolutions are doomed to fail.
New Year's resolutions are the most effective way to motivate habit changes, and yet, as many as 80% of people give up on their New Year's intentions by February and only 8% of people persist in their endeavors throughout the year, per U.S. News & World Report. Vagueness, lack of self-restraint, and imprecise approach are common reasons behind the failure to make set goals happen. If your road to achieving new financial goals is hitting a bump in the road or you're not sure where you're headed, this article is written with you in mind. To help you break the curse of new year's goal failures, we spoke to financial expert Amy Rosenow, CFA, CFP, from Fearless Financial and Tim Doman, investment analyst and CEO of Top Mobile Banks for tips on how to reach our financial goals in 2023.
Set actionable, inspiring goals
Half of financial success lies in goal setting. "One of the most important steps in achieving any goal is to make sure it is specific and measurable," Doman tells Glam. A vague vision for your future won't be useful in helping you build discipline and keep your eyes on your goals. Instead of stating that you want to save money, for instance, quantify that you want to save $10,000 for a down payment on a house. This provides you with a specific goal to aim toward and enables you to monitor your progress as you go. Asking "The Five Ws" questions is one way to help you set clearly defined goals.
What do you hope to accomplish? Where do you envision yourself achieving it? Who do you need to work with in order to accomplish it? When will the goal be completed tentatively? And why do you want to achieve it in the first place? You'll figure out how to accomplish your goals once you've found the answers to these questions.
Besides, your goals should also be inspiring enough for you personally to make sacrifices for them. Make sure you're doing it for yourself — not for anyone else. "Maybe it's stability, a yard for your dog, sunlight, or a shorter commute," Rosenow tells Glam. "Create a vision board with pictures of houses in your dream neighborhood." At least once a month, reflect on your progress and remind yourself of how much your goal means to you.
Create a realistic budget and stick to it
According to Doman, setting up a realistic budget — a plan for how to spend and save money — is crucial to accomplishing your financial objectives. To find out where your money is going, start by keeping track of your income and expenses. For a start, create a record of all the money you receive, including your monthly income, the source of the money (such as your earnings or returns on investments), and how frequently it arrives (biweekly or monthly).
Then, make a budget that will allow you to pay your monthly bills while still saving money for your goals. A budget should at the very least include three items: your net income after taxes, your monthly spending, and your savings. After setting your saving goals, find out how much you'll need to pay for your set monthly necessities, such as rent or mortgage and other living expenses, and how much you can set aside for savings.
It's not easy to live on a budget, but when it comes to financial goals, no pain means no gain. As far as on-budget spending goes, the general rule of thumb is to spend on what you need — not what you want. If it's not something you need and it's a big purchase, sleep on it or take at least a week to reconsider it. If the purchase throws you off your budget and interferes with your long-term financial goals, give it a pass.
Make saving easier by automating your savings
You don't need a Ph.D. in Accounting to know that savings are the backbone of financial health. The conventional wisdom is to save at least 10% to 15% or more of your monthly income to establish a solid financial foundation. This will enable you to achieve long-term objectives like retirement or home ownership. And yet — many of us tend to put very little money away for rainy days. Whether it's due to a lack of accountability or unexpected changes of plans, deviating from your budget can put your financial goals out of reach for a very long time. One way to ensure you're on track with your savings goals is to automate your savings, Doman points out.
For instance, you can arrange for a specified portion of your monthly paycheck to be automatically transferred into separate savings and investment accounts on a periodic basis without you having to lift a finger. Whether it's saving for a wedding or paying for a car, earmarking a budget for each goal and making monthly automated deposits into each one will help you stay on track with your savings. Automating your savings can be a real game changer. It helps you avoid common cash management pitfalls like procrastination, forgetfulness, impulsive spending, and neglected investments by taking the thought out of saving money. Taking the human element out of something that entails much temptation and resistance as money saving can help you hit your financial goals faster.
Prioritize paying off your debts
To boost your financial fitness, focus on building wealth — not debt. Debt can be a significant barrier to achieving your financial goals, so make debt repayment your number one priority. Your credit score improves, interest rates are reduced, and your budgeting flexibility increases when you pay your bills on time. Focusing your effort on paying off your most expensive loan — the one with the highest rate of interest — before anything else will help reduce your total debt costs and save more money. "If you have high-interest debt, such as credit card debt, focus on paying it off as quickly as possible. Consider consolidating your debt or negotiating with creditors to lower your interest rates," Doman advises. Another way is to use the snowball method, a debt-reduction strategy that involves clearing your smallest balance first to build momentum and working your way up to larger debts.
While working towards your goals, don't forget to reward yourself for every goal you've completed, says Rosenow. "It's rare for anyone to sustain enthusiasm and discipline without positive reinforcement," she explains. Financial accomplishments of any shape and form are worth celebrating since they are proof that we're moving in the right direction. For some, a reward can mean an online shopping spree, while for others it might mean dining out at a luxury restaurant or having a spa day. Whichever reward system you decide to implement, try to put it into practice at least once per month.
Make investments if possible
Investing is one of the best ways to hit your financial goals ahead of schedule. For a start, investing helps you stay ahead of inflation, which is the gradual decline in your money's buying power as a result of an increase in the overall prices for goods and services over time. You can stay well ahead of inflation and improve the value of your money by earning a yearly return on investment. Secondly, it goes without saying that nothing makes you strike gold easier and grow your fortune faster than investing. Not every investment yields returns, but sowing financial seeds can help you get rich faster and retire sooner than letting your money sleep in the bank. At the same time, setting money aside every week or month for an investment also teaches you the value of your money, helping you to be more disciplined in spending and financial-savvy in the long run.
Depending on your risk tolerance, you can choose an investment that fits your appetite and financial condition. The ideal range for investment is 15% to 25% of your after-tax income. Short-term investments, such as high-yield savings accounts or money market mutual funds, are an excellent way to earn more interest on your savings. "Start by setting up a retirement account, such as an IRA or 401(k), and contribute regularly. Consider working with a financial advisor to develop an investment strategy that aligns with your goals and risk tolerance," Doman advises.
Don't be sorry, be better
Just in case you've tried all the above-mentioned methods and you're still nowhere near your financial goals, don't be too hard on yourself. As long as you know you've messed up and what triggered you, you're still on the right track. Financial literacy has a steep learning curve. The point of setting up a financial management system is to know how much money you have and where the money is going so you don't have to feel stressed about it. Rosenow explains: "Avoid all-or-nothing thinking. Don't let a minor slip-up become a major issue because you give up." Just because you overspent on an unexpected big night out or lost your hard-earned savings to some get-rich-quickly schemes doesn't mean you'll never be good with money.
Also, do not compare yourself with others financially. Reading articles about how to feed a family of 10 on $100 per month or how to DIY everything in your life to save your first million won't actually help you wise up to the art of personal finances. You don't have to turn yourself into a hardcore penny pincher pulling out at all stops to reach your financial goals. Not everyone reacts well to extreme money-saving measures. The moment money-saving or -making becomes a heavy burden, you'll feel overwhelmed and tempted to quit. When it comes to finances, it pays to go slowly but steadily.