End of Year Goals
Fast forward your life a couple of weeks. Let’s imagine it is December 31. You just arrived at the New Year’s Eve party and ran into your best friends. After some ongoing back-and-forth, one of your friend’s finally pops the question, “What is Your New Year’s Resolution?” Finally! You have thought extremely hard about this for the last three hours. You even came up with a clever phrase for your resolution! “A fat wallet and a skinny waist,” you reply, “I am getting my finances organized and losing this extra weight.” The excitement from your friends is showered upon you. So long 2018! 2019 is going to be your year!
Now, back to today. I hope that everyone decides to make their finances a focus in 2019, but let’s have an honest conversation for a minute. New Year’s Resolutions are usually a disappointment. People tend to have this view that life resets each year. It doesn’t. A new year doesn’t wipe away all the things that have prevented you from accomplishing these resolutions in the past. HOWEVER, I am not saying that you shouldn’t have goals! I want everyone to have dreams and goals to achieve. We just need to separate them from New Year’s resolutions so that you don’t bail out in February. Here are six items to do in the next two weeks so that you are ready to set you financial goals in 2019 and beyond.
1. Determine Values – This is the first and most important step in any monetary discussion. Where do you want your money to go in order to build a life you love? I always like to ask people, “If someone who you didn’t know reviewed your spending to learn more about you, would the spending reflect your values?” Your spending habits need to reflect the values in your life. Figure out what you value and what things in life are most important to you.
2. 2018 Review – You will never know where to go from here unless you know where you’ve been. The next step is to review what happened in the last year. What did you spend money on this year? How much money did you contribute to retirement? How much debt did you pay off (or add on)? This is a crucial step. Figure out what is really happening to your money each month.
3. Compare steps 1 & 2 – This is when you get to decide if your money is achieving what you want it to. This step usually goes quicker than you think. Let’s say you value personal growth and education. Did you spend more on books and learning or video games and going out last year? Hopefully, these two items align with each other, but don’t worry because next year can always be better.
4. Do some number crunching! – The boring part for those of you who don’t crunch numbers for a living. You need to get an estimate of your income and expenses next year. Start by writing out your income and all necessary expenses such as rent, utilities, food, etc. Make sure to include one-time expenses such as car insurance, taxes, and gifts. When you have all the ordinary and necessary expenses listed, see how much is left over for discretionary spending and savings.
5. Set SMART Goals – Specific. Measurable. Attainable. Relevant. Timely. You have probably seen this acronym before. “Fatter wallets” is not a goal. Most New Year’s resolutions are not goals. Your financial goals need to be very focused and measurable. They need to be attainable and, for this purpose, within the next year. These goals should be the quantifiable version of the values defined in Step 1. A good example of a SMART goal would be, “I will contribute $200 per month into a Roth IRA after my first paycheck each month.”
6. Automate – I’ve said this before in the past. Automate as much as possible. You won’t be able to do this with all your goals, but something like monthly contributions can be set up to never think about again. You will achieve your annual goal by spending fifteen minutes on the computer.
Hopefully, you set some great goals for next year. Then you will have some more ideas when you sit down to do this exercise next year. There’s never a bad time to get your finances organized, but you should be intentional about it. Don’t make it a resolution that will probably fall out of your mind by February. Your finances are too important. It’s amazing how much happier you can be when your money aligns with your values. It doesn’t happen by chance. Good luck and have a wonderful holiday season!
Mike Zeiter, CPA/PFS