This year, forget about New Year’s resolutions; they don’t work. A 2007 study published in the Journal of Clinical Psychology showed that 88 percent of all resolutions ended in failure. Sure, the first two weeks usually go great, but by February, people start falling off the wagon and before long most find themselves back where they started, and sometimes even further behind. Still, approximately half of the US population makes New Year’s resolutions each year. Among the most popular are weight loss, exercise and better money management.
As the writer of a personal finance column, you would think that I’d be all in favor of encouraging my readers toward better money management and personal finances. It’s true; I am absolutely in favor of these things. But instead of setting financial resolutions, I want you to set some financial goals instead. Here’s the difference:
A resolution is an expression of intention. It’s a promise to do something, but usually lacks specifics. Year after year, the most common resolution is to lose weight, or to get in better shape. These resolutions are too general.
In contrast, a goal takes a resolution one step further and identifies specific, measurable and time-targeted actions necessary for achievement. For example, a goal would not be merely to lose weight; that’s a wish. A goal would be to lose 20 pounds by March 31. Do you see the difference?
Here are seven steps to help you turn your financial wishes into goals.
1. Define your goals: Here are some examples:
· Pay off $2,500 in credit card debt by June 1.
· Increase my 401k contributions to 10% of my pay before my next paycheck.
· Set up online bill paying before the end of the first quarter.
· Buy life insurance and meet with an estate planning attorney to set up my wills, health care proxy and power of attorney before our next vacation in July.
2. Write down your goals. When you record your goals on paper (or better yet, share them with a spouse, friend or trusted advisor), you take them from the abstract and make them real. You also increase the likelihood of achieving your goals since they’re not soon forgotten.
3. Be Realistic. Start with a goal that is easily attainable. When I was in high school, I played on the varsity basketball team (actually I sat on the bench, but that’s another story). Every time we played, our coach instructed us to begin our shooting drills by taking layups. He figured that making these “high-percentage shots” before moving on to longer jump shots would build our confidence. Golfers do the same thing on the practice green – they begin putting just inches from the cup and gradually move three, six and more feet away once they feel proficient on the shorter puts. Do the same thing with your financial goals and build momentum and confidence.
4. Prioritize. Once you’ve had some early success with some easily attainable goals, look at your list and set some priorities. Doing so will help you focus on what matters most to you. It’ll also help you avoid trying to do too much at once. Your mom likely told you to never put too much food in your mouth at one time. The same is true for accomplishing goals. Rather than attempting to achieve a laundry-list of things all at once, list your goals in order of importance and pick off one or two to focus on first. Remember, bad habits are hard to break and if you spread yourself too thin you’ll seriously jeopardize your chances of success.
5. Take Action. It’ll do you no good to take time to set goals and then let your plans just sit on a shelf or inside a desk drawer somewhere. Here’s where the rubber hits the road. Make a list of all the steps that need to be completed and assign deadlines for each one.
6. Set milestones. With long-term goals like retiring in twenty years or funding a college education for your newborn, it’s best to establish some interim targets to check your progress. Take retirement, for example. In year one you might focus on joining your company’s 401k plan and contributing just 1 percent of your pay if that’s all you can afford. In subsequent years, your goal might be to increase your contributions annually until you’re contributing all that the law will allow.
7. Review your progress. Hold yourself accountable to the deadlines you establish and evaluate what’s working and what’s not. You’ll have the best chance for success if you carefully monitor your progress. For short term goals like saving for a vacation, that means at least once a month. Long term goals should be monitored at least once per year. If you don’t have the discipline to do that regularly, consider hiring a financial advisor to help keep you accountable.
About this column: Steve Davis is a local CERTIFIED FINANCIAL PLANNER™ who has been helping clients for more than twenty years. He serves clients in Mansfield, Foxboro, Easton and other local communities. The opinions Steve expresses here are for general information only and are not intended to provide specific advice for any individual. Consult with Steve or your financial advisor before taking action. You can find out more about Steve and his company, Davis Financial at www.talkwithdavis.com
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