Whether they’re financial goals or not, it’s likely that you’ve set yourself a few New Year’s resolutions already or plan to in the coming weeks. “New year, new me”, you’ll think. Then perhaps the question of “but how will I stick to these ones?” might cross your mind shortly after.
So you don’t get stuck before you start, we have a few great tips to get you following through with your financial goals in 2022. Starting with understanding why you’re setting those goals in the first place.
Look back before you look forward
Now, before you make grand plans of how to put your resolutions in motion effectively, first take a look back on the year that has been. What has worked, what hasn’t and all that jazz.
A great place to start is with the previous years’ goals. How are you tracking with these? Did you manage to do the things you set out to do at the start of the year? Why, why not?
Did your financial position hold you back from achieving any of those goals? Perhaps you didn’t plan as well as you might’ve liked towards those goals and therefore weren’t able to action them? Or, on the flip side, your well-planned finances meant that you were able to do everything you set out to?
Of course, we can’t overlook the fact that COVID may have thrown a few curveballs towards you meeting these goals, so if you haven’t been able to achieve them, don’t get too down about it. There’s always this year!
To learn the specifics of how to do a 2021 financial check in, be sure to check out our recent podcast two part series explaining just this.
Then get clear on your 2022 life and financial goals
Setting new goals seems simple in theory – think about something you want to do, estimate the cost and when you would like to do it by, then save the money to do it.
However as many of us have most likely learned the hard way, it can be easy to lose motivation mid-way to the goal (or just a few weeks after setting it). Or perhaps we realise that we haven’t actually set ourselves up for success to get there from the beginning.
Maintaining motivation and setting ourselves up for success can start with ensuring we have a purpose for our money, and that we’re clear on how we’re going to get there.
Start with your why
As Financial Adviser Kalé Emery says, “having a purpose for your money can help avoid giving into short-term instant gratification”. Are you saving or investing to create long-term financial freedom? To create generational wealth for your kids? Or in the short term, so you can move to Italy and finally have the OE that recent events may have put a pause on. Perhaps you want to purchase a home so you can create a safe, stable environment for your children?
Take a moment to sit down and reflect on why it is you’re saving or investing. Then, once you’ve got the purpose behind your money it’ll be a lot easier to wrap short, medium and long-term goals around it.
What’s in your short, medium and long-term horizons?
Now you know what you’re investing, think about when you’ll need the money and therefore what your goals will look like. Crunching a few numbers and thinking about a [flexible] timeline go hand-in-hand, because it’s one thing having a vague idea of when you might like to do something and another to actually figure out when you can reach these goals.
Let’s run through an example of someone in their late 20’s to illustrate what I mean by this.
Say your long-term goal (30+ years) is to retire financially secure, so you can spend more time with your kids. That might feel quite far away, so in the medium term (5-7 years), you’d like to buy a house and in the short term (1-3 years) you’d like to go travelling for a couple of months.
Voila, you have your flexible time horizons.
What about the numbers?
Let’s say the travel will cost ~$20,000 and the house deposit ~$250,000 (20% of a $1.25M home).
In the short term (1-3 years) you’ll need to save $20,000, in the medium term (5-10 years) $250,000. For ease of calculations, let’s assume that you take the approach of paying off one goal after another versus chipping away at both at the same time.
To pay for your travel in 1 year, you’ll need to save $20,000 which works out to be $1,666 per month. Stretch that timeline out to 2 years and you’re looking at needing to save a total of $10,000 per year, $833 per month.
If you have a household income of $120,000 (after tax) and can save 20% of each pay cheque, that’s $24,000 per year, $2,000 per month.
So, in just under 1 year you’ll be able to hit that travel savings goal. Perhaps sooner (or later) than you might have imagined. From here you can apply the same theory to saving up for a house deposit.
The point we’re trying to make isn’t that it’s going to take you roughly 1 year to save for your short-term goals, it’s that instead of setting lofty goals with good intentions of hitting them, perhaps this year you can take it one step further and crunch the numbers to gain clarity over when you’re likely to actually hit those goals. This is called reverse engineering your goals.
Once your goals are sorted, set up structures to help you achieve them
Brene Brown, researcher and social scientist, and James Clear, author of Atomic Habits, on a recent podcast suggest that the structures which has gotten us here are not going to be the ones that get us to where we want to go (I.e. the aforementioned goals). We therefore need to create new habits, structures and systems to support us getting to the next level that we’re aiming for.
We found this particularly insightful with relation to why we might have fallen down so quickly when trying to implement previous years’ financial goals. Did we have the structure in place to support us effectively doing go?
What do we mean by structures?
Structures are frameworks or systems that support you to get to your goals or make it easier for you to do so. These can look different for everyone because what might work for someone else, might not work for you and vice versa.
Effective structures with regards to our finances can look like having external accountability such as a financial adviser or investment club who hold you to what you say you want. Or simply acting as a reminder along the way to a goal of why you’re doing it in the first place.
Structures can also be tools such as automated payments (APs) or automated investing. These help ensure that you aren’t tempted to use that spare money for other things and that it becomes an easy and frictionless habit, that makes it more difficult to do the undesirable action. See our blog on paying yourself first for more info.
Knowing which structures will support you the best in achieving your financial goals comes back to how well you know yourself. Are you self-motivated and able to execute towards a goal consistently? Or do you need external accountability to get you up and into action (think going to the gym solo vs meeting a personal trainer there or doing a group fitness class)?
Make a financial plan, whatever that looks like for you
Whether you simply need to automate your investments or engage a financial adviser to see you through to achieving your financial goals, kickstart 2022 by making a plan of how you are going to do it. It’s one thing to talk about what we want to achieve and another to effectively commit to doing it.