December 27, 2021
This is the time of year our shirts feel a little tighter and we start thinking about how we need to start eating better and exercising. “Starting next week, I’m going to focus on getting in shape!” I’m definitely guilty of this myself. The stats show us that most folks abandon their New Year’s resolutions shockingly early in the year. I think this is partially because we’re bad at setting goals. When thinking about setting a New Year’s resolution, you should use a method called “SMART” goals. SMART stands for Specific, Measurable, Achievable, Relevant, Time-Bound.
Instead of making the resolution “I need to be better with money next year,” try something SMART like “I am going to build an emergency fund of $1500 by saving $125 every month starting in January.” I’m sure you can see the differences in the way those goals are laid out.
There are alot of areas worth focusing on when setting a New Year’s resolution in 2022, but I’d encourage you to add a money goal to your resolution list. With the SMART method in mind, here are some general ideas worth considering when you’re setting your money goals for 2022.
If I were you, I’d be tired of hearing about emergency funds! Although it’s a boring goal, it’s a very important part of a comprehensive financial plan. When I work with clients, we talk about why money is important in the first place. I hear “security” and “safety” alot. When it comes to money, a lot of people just want to feel safe and secure with their money. When I hear these words, I write “Emergency Fund” at the top of the list of goals. If safety and security are important to you when it comes to money, I’d consider making sure you have an adequate emergency funds.
As far as how much you should save in your emergency fund, that’s up to you. The general rule of thumb is to have 3 to 6 months’ worth of expenses saved for an emergency. This number can be really daunting for folks, so starting with a smaller number might be a good place to start. If you have no emergency fund, aiming for $1500 might be a strong first benchmark.
For young people, this can also be a boring goal, but your older self with thank you for thinking long-term! For me, this goal can be a little tricky because it’s easy for a financial planner to say, “save more for retirement.” Asking a financial planner if you should save more for retirement can be like asking a barber if you need a haircut: the answer is always “yes.” For me, I’ve been challenging clients to determine what “retirement” really means. For some, it’s a traditional path. For others, it’s less traditional.
Either way, saving for your future is important. For this goal, I’d encourage you to check your employer plan and make sure you are taking full advantage of your company match. If you’re not, you should consider increasing that contribution. You may not even notice the change in your paycheck and it’s a great way to improve your financial situation in 2022.
If you are already taking advantage of your employer match, you have a few options. You can continue to contribute to your employer plan above and beyond your company match, you can contribute to a Roth IRA, or you can increase your savings for another goal or an account outside of retirement. Making this decision is easier when you have a clearly defined goal for your money. (This is where a financial planner can help!)
This one can be really fun! There are a lot of things that can fit into this category; I’ve left it intentionally vague. It can really be anything, so I’ll give you a few ideas based on what we put into this category in my house. We are always saving for experiences, specifically travel, and we have an account for “occasions,” which just means gifts for others. Saving for gifts all year really helps during this time of year and those months when we have multiple family birthdays to celebrate.
For others, some goals I hear often are vacations, buying a home, buying a car, or any other major purchase that might be important to you.
We often have a hard time with a goal like “protecting your family” because it usually means you have to think about your mortality and the possibility that you could die prematurely. When I really dig into what’s most important to folks, it almost always comes down to spending time with and caring for their families. Since our loved ones are so important to us, we really need to prepare for the unexpected. Some areas you should be thinking about with this goal are life insurance and estate planning. These areas can be complicated and difficult to navigate, so reach out to a financial professional if you need help.
The reason we do financial planning is to make sure you are using your money in a way that aligns with the values are most important to you. Before setting any specific money goals for next year, it’s worth spending some time thinking about what’s really important to you and why are you setting these financial goals in the first place. Once you have a clear idea of why you’re setting these goals, they become easier to stick to.
Again, these are just some general suggestions meant to be used as a starting point when you are setting your SMART financial New Year’s resolutions. If you need help, 2Point0 Financial will always be here for you and your family! We hope you have a happy and healthy 2022!
You wouldn't wait until the morning of a flight to plan a trip.
Don't wait until retirement to make a financial plan.