You know that you mean well. You always do, don’t you, when it comes to making new year’s resolutions. That diet you were gonna do to lose some weight, the smoking thing that you were definitely going to knock out last year for sure, and oh yeah, the garage that’s full of junk that you have been promising to clean out since 2007, but this is the year, right? You tell yourself every new year things like that and even more.
And of course there are those financial resolutions and goals that you seem to always set for yourself to do better with your money, but by the end of March you can’t even recall exactly what your goals were and where you went wrong along the way. Does that sound pretty familiar?
It seems that by spring, we’re no better off than we were last year, or maybe we’re even worse. You haven’t made any progress with any of your financial resolutions and you’re getting discouraged. You may even head off to the mall and go there to soothe your soul with a big expensive shopping spree, but let’s hope for more sensible actions.
The Big Three Goals We Just Can’t Blow Again
Typically, people say they have three big financial resolutions every year and they are in this order: save more money, pay down their debts, and spend less money.
But here’s the problem. You can’t achieve your financial goals with just vague promises. You need to be really specific, and you have to have an actionable plan with a real timeline. How many times have I written this line…
You just can’t get it “wishin’and hopin’”. (Oh if only I had actually been the one who wrote it originally and not Hal David & Burt Bacharach!)
Making Your Goals and Acting S.M.A.R.T.
It’s time to start thinking and acting smarter, I mean actually S.M.A.R.T. smarter. The acronym stands for: Specific, Measurable, Attainable, Relevant, and Time-bound goals. And that really works.
There’s a real method to this madness and it’s the best way I know that you can achieve your goals and resolutions that have seemed to escape your clutches for as far back as you can remember. This year, 2019, is the year that you can really do it. But even more important is that it is the year that you must do it! You can’t afford to make this just another year of broken promises, dreams, and goals that you fall short on. You may not want to admit it, but time stands still for no one and it is slipping away every year you fail to achieve your goals!
Now, Not Later…Now!
There is never any time better than right now to do anything to improve your financial position and you are not granted infinite time to accomplish your goals so why do you continue to accept bad results as your fate? There is no good reason, ever!
You may feel like the new year has past, and now you have to wait another year for your chance to make changes, but that’s just nonsense. You don’t have to wait for the beginning of another year, month, week, or even day to get started.
Here’s How to Make Smarter Goals
In your past, you probably set a goal very much like “I want to save more money and stock up my emergency fund”. How did that work out for you? Seems worthy enough, but what exactly does all that mean and how do you accomplish it? Wouldn’t it be much better to plan a goal like that in the S.M.A.R.T. way?
The S.M.A.R.T. goal might look like this: “I will save 5% of my after-tax income each paycheck until I have $1,500 stashed away in an interest-bearing insured emergency fund no later than September 30th”.
You probably know by now that you need to have at least three to six months of living expenses saved. But that might be too high of a hurdle to jump over right away. If your rent/mortgage, cable, cellphone, car payment, utilities and other household expenses come to, say, $4,000 a month (a typical scenario these days) a three-month goal would require you to save $12,000. That’s pretty daunting and probably not realistic.
One Step at a Time
A more attainable goal is to start by saving just enough money to cover a financial emergency of, say, $1,500. Typically, that will cover the most common types of things that can go wrong like a car repair bill or a new washing machine.
You will find making that goal is a heck of lot easier and you can get there in a relatively short period of time. Then, when you hit that goal, you can reach for an even higher goal of saving one month’s worth of living expenses and so on. It’s a much more reasonable approach.
Taking this kind of measured approach may seem like “baby steps”, but it will lead to better results than just saying “shazaaam, I’m going to save $12,000”.
Are You “Doomed with Debt”?
Instead of your old standby “this year I’m going to pay off all my debts”, why not try the S.M.A.R.T. way of doing it? You really do want to pay down debt, don’t you? Here’s how.
The Debt Snowball
To begin digging yourself out of debt, you need a specific, real debt reduction strategy. One smart way that I always use is to order all my outstanding debts starting with the one with the lowest balance (also known as the debt snowball). It will be the easiest one to attack and stomp into pieces, at least easier than any of the other debts that is. Of course you’ll have to cut your expenses or earn some extra money—or both—in order to find the funds to attack the debt.
The key though is to commit to a consistent amount every week (or month) and pay more than any minimum payments that are due on it. That commitment should be targeted until it’s completely paid off! Then, even if you have to make just the minimum payments on all your other debts on your list you are still making a real impact. And by the way, it really feels good to knock even a small debt off your list!
Once you’ve paid off the first debt, move the extra funds on to the next one and so on. Be sure that your extra payment is always applied to the principal and is not counted as an extra monthly payment. That will save you on the dreaded interest money. Or…
The Debt Avalanche
You could also start paying off your debts starting with higher-interest debt first (also known as the debt avalanche). Mathematically, this does makes sense. However, I’ve found that you will feel better and stick more closely to your plan because the first way you will see your progress sooner. A recent study published in the Journal of Consumer Research found that borrowers are more motivated when they concentrate and eliminate in paying off a debt even when that debt is the one with the smallest balance.
Save Yourself and Spend Less by Saving More
The smartest and easiest way to spend less and stash money away is to make sure you never have it available to spend to begin with. Now that of course means you have to actually have a job and an income, but it seems like having a job right now isn’t as much of a problem as it was just a few short years ago (albeit being underemployed may be the problem). The unemployment rate as I write this is at record lows. So let’s assume you actually have a job or you can find one when you go looking and are getting an income regularly for this suggestion. Here it is: automate your savings.
“Save some money” is a timeless bit of personal finance advice, but actually doing it can be another story. The easiest and best way I know to boost your savings and stay consistent with your goals is to set up an automatic funds transfer from your regular paycheck.
Automate Your Savings
The smart way of committing to savings 1%, 3%, 5%, or even 10% of your pay every week (or month) actually works. The way you can do this is to set up an automatic transfer from your pay to your checking, savings, or even investment account at your personal financial institution (your employer or your bank can do this for you). You won’t be tempted to spend money you never actually have in your hand as much as you would otherwise and after you set this plan up, you may not remember or even miss the extra money at all. Having a small amount at first drawn and then seeing it grow with interest is an amazing feeling, especially for someone who has never been able to do such a thing before!
This method is also a great way to save a portion of your paycheck into a retirement plan too. That’s another fund that resolutions often fail to grow and you seriously just can’t afford to blow that one because you will have to live with that failure for a very long period of time down the road. You know, that’s where the signpost reads “Retirement”!
This no-effort, smart approach to savings means you don’t have to give it another thought. If you tend to second-guess your saving decisions, such as whether you actually need to save 5% or 10% of your income this month, you can avoid doubting yourself and keep the savings flowing. Using automatic transfers to save will empower you to save without investing much time or energy. Think about it: You can achieve your goal simply by sitting back and letting your money do all the work for you. But, you have to actually get it started.
Other Goals and Resolutions
You may want to set some other financial resolutions or goals, such as saving up for something special. For ideas on some of the best ways to spend your money, check out 17 Best Things Money CAN Buy (in 2019). Use your S.M.A.R.T. method to set up the goal, and before you know it, you’ll reach success.
If you want a list of ways to spend less and save more, there is no shortage of tips on here or on the many other blogs you can find on the net. Saving while spending is really just a “game” and those who play it are usually big winners, but it does take some effort to do it.
My message today isn’t about saving in the “I want a discount” sense at all. It’s about how you can and will improve your finances with a S.M.A.R.T. approach and that simply means serious dedication and some sacrifices, too. At some point, sooner rather than later, we all must face the duty we have to reconcile our bad spending habits and get back on track to financial control and success. If we don’t, well, there’s a special place reserved for us called by names you know but I don’t want to have to speak them out loud!
Does making a new year resolution frighten you? How’s your track record on keeping them, especially your financial resolutions? How did you do with your 2018 goals and are you ready for 2019? Is this the year you finally hit all of your financial targets?