Happy New Year! The start of a new year is a time of reflection, with thoughts of making life changes to improve on things that might not have gone as planned in the past. Some decide to formalize these planned changes as resolutions. However, despite the best of intentions, more than half of all resolutions fail and one third of those who make resolutions don’t make it past the end of January.
Knowing that, this is not a post about setting financial resolutions! Instead, we are going to think of 2022 as a year of opportunity – for learning about financial literacy, for setting financial goals, and for building financial confidence in order to achieve these goals.
In order to plan where one wants to go, one must take stock of where one is at present. Do you have a specific financial concern, for example, budgeting or debt management? Are you interested in learning about financial literacy in general? Do you have specific financial goals that you would like to achieve in 2022 and beyond? Take a moment to think about these questions. Your answers will help to determine the path that you will follow.
Based on what YOU would like to achieve this year, think about setting some SMART goals. The term SMART goals was first used over 40 years ago, in the November 1981 issue of Management Review, and refers to goals that are specific, measurable, achievable, realistic, and timely. Let’s think about how your financial goals might incorporate these attributes.
Specific. Your goal should be concrete and you should have the ability to articulate it. While a broad statement such as “I would like to learn more about financial literacy” is great, how do you know when you have achieved it? Is there a specific aspect of financial literacy that you would like to learn more about, for example, budgeting or planning for retirement? Other financial goals might be paying off debt or saving for a specific purpose, e.g., a down payment for a home. The more specific is your goal, the better.
Measurable. You will be tackling your goal over time, and you will want to be able to measure your progress, and to know when you have achieved it. Perhaps you have a list of five financial literacy topics that you would like to learn more about. Write them down, and check them off as you have completed your learning. If you have a debt repayment goal, make a list of all of your debts. You will then be able to measure your progress as you make payments throughout the year.
Achievable. Go back to your assessment of your present situation, and consider where is your desired destination. Sometimes this journey is long, and must be broken down into manageable segments. Think realistically about what you can hope to achieve over the coming year. Achieving small “mini goals” throughout the year will feel good and will provide you with continued motivation.
Realistic. Set a goal that is within reach. When I decided to set my goal to retire at age 43, it was after careful analysis of my financial situation at the time, my ability to contribute significantly to my savings over a specific time period, and an assessment of what my period of “retirement” would look like. If your goal relates to debt repayment or saving, consider your available cash flows which could be directed towards your goal and use this information to set a goal that is realistic for your current situation.
Timely. While some goals are long-term in nature, e.g., saving for retirement, it is helpful and motivating to break them down into smaller goals for shorter time periods. If your goal is saving for retirement, how much do you want to save in 2022? Divide that number by 12, set up a monthly pre-authorized transfer to a retirement savings account through your financial institution, and you will be on your way! Having time sensitive goals will allow you to track your progress along the way. At the end of the year, you can compare your actual savings to your savings targets for 2022. If you did not meet your targets, you will have the opportunity to make adjustments along the way.
Goal setting is an iterative process. Consider this your first draft, which can be refined along the way. The most important thing, however, is to take the first step.
Life Lessons 