If 2020 has taught us anything, it is that we have to be prepared for a rapidly changing world and how your financial situation can change quickly. If you want to improve your money situation in 2020, then is all starts with setting goals that you can and will achieve.
What is the first step in making financial resolutions that have a real impact?
It all starts with understanding your current financial situation. Without this understanding, it will be very hard to make resolutions that will be impactful. Starting with a review of your last 6 months should provide helpful insights.
What areas of our financial life should we be reviewing?
First, analyze your spending, knowing where your money is going is the basis for many future decisions. Next understand how much debt you have and also the amount of your non-retirement savings you have built. Finally look into your retirement saving efforts, especially as a percentage of your gross pay.
How can this information be used to improve our financial situation?
Understanding these aspects of your financial life will highlight areas that need to improve. It could be that too much of your income is going towards debt or that you haven’t started saving for retirement. Once we know where we need to improve, we can develop our 2021 financial resolutions.
How does someone develop resolutions that they will actually accomplish?
It all starts with utilizing the SMART goal methodology. SMART is an acronym for developing Specific measurable, attainable, relevant and time-bound goals. Incorporating these 5 aspects into your 2021 resolutions will help you set goals that are doable and impactful.
What is an example of a SMART financial goal?
Here is one about reducing credit card debt:
I want to reduce my credit card debt by 50% by the end of the year. This will require me to pay an extra $100 per month which I have because of my annual raise I just received. Reducing my debt by 50% gets me closer to being debt free. Being specific with the goal and specifically stating how to accomplish the goal will increase the likelihood of actually achieving this resolution.