A new year offers a chance for you to start fresh. It also provides an opportunity to achieve your highest aspirations. From paying off your credit card debt to saving for the car of your dreams, it’s time to learn how to set financial goals in 2020.
Studies show that people who write down their goals are three times more likely to achieve them. Read on to discover why goal setting is essential, and how you can create goals that you stick to and accomplish this year.
Why Goal Setting Is Important to Your Financial Success
Before we dive into how to set financial goals in 2020, let’s dig into why it’s important.
Financial goals give you something to work toward and help you maintain your motivation. Saving money and achieving success is plain challenging. It requires you to make sacrifices and continue the course even when you feel like you’re not making progress.
Unless you clearly define your reason for making these sacrifices, you may slip back into poor financial habits and may never achieve the things you seek.
When you have specific goals, you’re more likely to stay the course and maintain the positive financial habits you’ve created.
Working toward your financial goals over time will help you achieve the financial life you dream of.
Identify What Matters to You
The first step to creating a goal is to identify what matters to you.
For some, it’s the freedom to travel wherever they want. For others, it may be spending quality time with their families. When you can understand what matters most to you, then you can cater to your financial goals to help make this outcome happen.
It has been said that a budget reflects a person’s values. Your financial goals will usually coincide with what matters to you the most. This first step will help you to be successful in achieving your goals because they will be tied to your emotional connection to an outcome that matters to you.
Take Inventory of Your Finances
How can you move forward if you don’t know where you began? In other words, how could you track the distance you’ve traveled if you didn’t note your starting location?
Taking an inventory of your finances is the only way to track your progress toward your financial goals in 2020. When making an inventory of your finances, you need to get clear about how much debt you have and the value of your assets.
Here are some of your financials that you should review during this time:
- Bank accounts
- Investment accounts
- Credit card balances
- Outstanding loan balances
- Mortgage balance
- Other investment
It’s wise to keep a record of all your accounts. You could use an excel spreadsheet to keep track of your account balances. If you choose to add account usernames and passwords, you should make sure you encrypt the file on your computer. You don’t want to make it easy for hackers to access all your financial information as a breach of security could set you back on achieving your financial goals in 2020.
By taking an inventory of all your accounts, you can have a clear starting point. You’ll know exactly where your finances stand. This will help you determine when you want to accomplish your financial goals and what the steps are to achieve them.
Clearly Define Your Goals
Now that you have a clear vision of your current financial picture, you can begin setting and achieving your financial goals. It’s recommended to set “SMART” goals.
SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Timely. This acronym incorporates everything you need to increase your chances of achieving your financial goals.
Here’s how to make each of your goals “Smart” goals.
First, each of your goals must be specific and well-defined. This is where many miss the mark when defining their own goals. Think of your goals as a destination on a map. If your starting from your home but don’t have the exact coordination or address of your desired location, you may end up driving in circles forever.
Therefore, you need to be as specific as possible. Here are some questions you can ask yourself to help define your specific goals:
- Who: Who’s involved?
- What: What would you like to accomplish?
- Where: Where do you want to achieve your goals?
- When: When would you like to achieve your goals?
- Why: Why do you want to achieve this goal?
For example, instead of saying you want to pay off your debt. Your goals should look something like this:
I want to pay off my revolving Discover credit card bill of $2,000 by April 1, 2020.
SMART goals must have criteria for measuring your progress. If you don’t establish measurable criteria, you won’t be able to track your progress toward your goals. To do this, ask the following questions:
- How much or how many?
- How will I know when I achieve my goal?
- What helps me indicate my progress towards my financial goal?
For instance, if we build on the example above, you may want to save something like: I want to pay off my revolving Discover credit card amount of $2,000 by paying off $200 per week.
While it’s possible to achieve anything you want, you may have some limitations that should be accounted for. With that said, it’s important to make sure your goals are achievable and attainable. For example, making an extra $1 million may not be attainable if you only make $50,000 a year.
You may want to ask yourself:
- How will I know when I’ve achieved this goal?
- How realistic is it for me to accomplish my goal?
Continuing the example above, you may want to consider where you’ll have to make changes in spending to contribute $200 toward your goal of paying down the $2,000. It may look like: I want to pay off my revolving Discover credit card amount of $2,000 by paying off $200 per week. I will skip going out to lunch every day and pack a lunch instead to save $60 each week and drive for Uber to make an additional $140.
You should be able to envision the bigger picture that your goals contribute to. Your goals should align with your financial vision and drive you forward. If you can confirm that the goal is important to you and the objective behind achieving it, and you have the means to do so, then it’s realistic.
To ensure that your goals are realistic, ask yourself:
- Is this goal important to me?
- Is now the right time?
- Why do I want to achieve it?
- What is the objective behind the goal?
When you’re writing out your goals, you may want to add a line that describes why it’s important for you to complete this goal. In the same example, you could add a line that says something like: I want to be able to buy Christmas gifts next year without going into credit card debt, and paying off my current card by April will give me six months to save for the holidays.
You may have heard the adage, “goals are dreams with deadlines.” You must know when you want to accomplish your goals by to prevent smaller tasks from taking priority over your true goals. Understanding your time boundaries will help you to create milestones and understand when your goal is accomplished.
You may want to ask yourself the following questions to ensure that your goals are timely:
- How long will this take to accomplish?
- What’ll my steps or milestones be?
- What can I begin today?
To add on to the example above, the final line of your goal may look like this: I want to be able to buy Christmas gifts next year without going into credit card debt. Paying off my current card by April will give me six months to save for the holidays.
Create a Budget
Once you understand your net worth and you have set some “SMART” goals for the new year, you’ll want to begin to work on a budget. If you already have a budget, this is the perfect time to adjust it. Developing a well-thought-out budget is imperative to how to set financial goals in 2020.
You may want to start by creating a spreadsheet identifying your financial priorities. This should include your expenses and savings contributions. Once you have all your fixed and variable expenses outlined, you can determine how much discretionary spending you have. Once you have a budget in place, you may want to consider using certain tools and resources to help you stay on track. For example, using a budgeting tool like Qube can help you create positive spending habits and will help you stick to your budget. Which then, in turn, helps you achieve your financial goals.
Review Your Progress Regularly
Now that you’ve taken your financial inventory, created financial goals for 2020, and developed a budget, you’ll want to schedule a time to review your progress. Taking the time to review your progress will help you highlight how far you’ve come and will help you may adjustments when need be.
Avoiding the review of your finances regularly can veer your progress off course. Reviewing your finances regularly will help you stay motivated and inspired to keep going. It will also allow you to evaluate where you can clean up your habits, or even where you can loosen up.
Schedule your reviews every week, every month, every quarter, and every year. Take the time now to write your reviews on your calendar so you can ensure you prioritize your financial check-ups.
Tips for How to Set Financial Goals
There are many ways to go about achieving your financial goals in 2020 and there are many ways to make it easier on yourself.
You may want to investigate automatic deductions or credits to make saving easier. For example, many credit card companies have the option to automatically pay your balance from your bank account. Additionally, if you work for an employer that offers a 401k, you can have a percentage taken from your paycheck before you receive it.
Monitor your spending habits
It can be helpful to add a calendar reminder to check your bank accounts and credit cards every week or month. By monitoring your spending habits, you’ll keep your spending top of mind and will avoid overspending.
Develop a Positive Mindset
Positive financial habits are the actions that you take to work in the direction of your financial goals. This includes understanding the difference between your needs and wants and taking care of your financial goals first.
Another example of a positive financial habit is paying yourself first. This means that when you get your paycheck that you allocate your money toward the things that you need, and make sure that you take care of yourself first. Good habits lead to good outcomes, which will lead to a positive outlook on money.
Use a Budgeting Tool Like Qube
Qube Money is a banking system that helps you control spending, eliminate debt, and creates a healthy financial environment by using the app. If you want to maintain positive spending habits, using an app like Qube Money can help you stay on track.
Increase Your Financial Literacy
When you understand finances better, you’ll be able to manage your financial situation better. You can increase your financial literacy in a few ways:
- Start by doing research online and continuing to read blog posts like this one.
- Illicit the help of a professional such as a financial advisor or coach.
Carry Your Financial Goals with You
It has been said that people who write down their goals are three times more likely to succeed in accomplishing them, and even more likely if you see them every day. Since most of your day to day spending will happen with cash and credit cards, it’s wise to write down your goals on a notecard and keep them in your wallet.
This way, not only will you see them often, but you’ll also look at them when making small financial decisions. This will help you to be reminded of your big-picture goals.
It’s important to reward yourself as you hit milestones on your way to achieving your goals. You may want to break your large financial goals down into milestones and assign a reward for each step along the way. This will help you to stay motivated as you approach your goals.
Keep in mind, as you do this that these goals should help you get closer to achieving your goals. As someone who has a weight loss goal shouldn’t reward their weight loss with donuts because it would be counterproductive, you should not reward yourself with expensive things as you get closer to your financial goals.
For example, let’s say that your goal is to pay off a credit card in full this year. If the balance is $15,000, you might want to create milestones every $3,000 that you pay off so that you can celebrate getting 20% closer to your goal of having it paid off. These rewards might be hiring a financial advisor to start talking about the investments you’ll make after you pay off your credit card debt or to open your first investment account. As you set your milestone rewards, you should remember that the real reward is accomplishing the big goals that matter to you.
You can use the process above to set your financial goals and reward yourself as you get closer to achieving them. If you need help creating or achieving your goals, you may want to elicit the help of a financial advisor. Regardless of what you set out to accomplish, you can start now and move forward confident in the steps you’re taking toward financial freedom.
This is your year to not only learn how to set financial goals, but to stick to them and become financially free; don’t let another year pass you by.
Learn more about Qube Money and how it can help learn how to set financial goals in 2020.