Setting Goals for the Year Ahead
This time of year, many of us are thinking about New Year’s Resolutions and things we’d like to achieve in 2022. As you’re setting goals for the year ahead—financial and otherwise—here’s a simple strategy you can use, so you’re not tempted to give up by Valentine’s Day.
In this episode of The Retiring Entrepreneur Podcast, I’m sharing a simple, 3-step process anyone can follow to get closer to your financial goals.
Financial Goal Setting Step #1: Review last year’s financial progress.
To set realistic goals, you need to know where you’re starting from. In addition, having a baseline will help you measure your progress towards your goals next year.
As you’re reviewing your finances, look at your spending, savings, and earnings over the last year. If you have a budget, did you stick to it? How much did you save over this last year, if anything? And how do your earnings compare to your spending and savings rates?
Note what you did well, as well as areas where you can improve. This will help you set goals for 2022.
Financial Goal Setting Step #2: Set SMART goals and prioritize them.
Commonly attributed to Peter Drucker, SMART is an acronym that can help you set more effective financial goals. It stands for Specific, Measurable, Achievable, Relevant, and Time-Bound. Let’s break this down further with an example.
Perhaps one of your goals for 2022 is to save more for retirement. You’re self-employed and have put retirement plan contributions on hold as you build your business.
Saving more for retirement isn’t necessarily a bad goal. But it doesn’t give you a clear path towards achieving it. So, how can you turn this into a SMART goal?
First, get specific. Instead of saving more for retirement, your goal could be to research your retirement plan options as a self-employed individual and open an account that you’ll contribute to consistently throughout the year.
Next, you can make your goal more measurable by defining how much you’ll contribute, as well as how often. For example, maybe you’ll contribute 10% of your monthly income to retirement or $500 every other week throughout the year.
At the same time, make sure your goal is achievable and relevant. In other words, saving more for retirement is indeed relevant to your personal financial situation, especially if this hasn’t been a priority for you to this point. But don’t aim to contribute at a rate that’s unrealistic just because you feel like you’re behind. Setting goals that are overly aggressive is almost always a recipe for failure.
Lastly, your goal should be time-bound. So, whether you want to be consistent throughout the year or save as much as you can until you max out your contributions, be sure to set a deadline so you can measure your progress.
Try to set about three SMART financial goals for 2022, since setting too many goals can be counterproductive. Once you have your goals, prioritize them from most important to least important. This will help you develop a strategy to achieve them.
Financial Goal Setting Step #3: Develop a plan you can stick to.
The last step is to create a plan to achieve your goals. Now that you know what you want to achieve in 2022, you need to decide how you’re going to make it happen.
Oftentimes, setting new goals also means creating new habits. For example, if one of your life goals is to complete a triathlon, going to happy hour every day probably won’t get you there. You’ll need to add relevant workouts to your daily routine and potentially change your eating and sleeping habits, as well.
The same is true for your finances. Developing good habits is essential for success.
The good news is you don’t have to change your habits dramatically to see big results. In his book Atomic Habits, James Clear highlights that if you can improve your habits by 1% each day for one year, you’ll end up thirty-seven times better by the end of the year. So aim for small, consistent changes that you can stick to and will get you closer to your goals throughout the year.
Finally, one of the simplest strategies you can use to stick to good money habits is to automate what you can. For example, set up automatic bill-pay, automate your retirement plan contributions, or set up automatic transfers from your checking account to your savings account. The fewer decisions you have to make, the more likely you’ll be to stay on track towards your goals and not get distracted by competing uses of your money.
Consider Working with a Trusted Financial Advisor
So, there you have it. A simple, three-step financial goal setting process anyone can follow to improve your chances of success. I hope you find it helpful. And remember, working with a financial planner is a great way to develop good money habits and hold yourself accountable for your decisions. If you don’t have a trusted advisor, consider making that one of your financial goals for the year ahead.