It is the beginning of a new year which means a great time to review your finances and goals. I like to review the previous year and see where I did well and where I fell short of my financial goals.
Step 1 – What do you want to accomplish this year
My goals through the years have changed. Below is a list of possible goals you may want to accomplish this year:
- Make and Stick to a Budget
- Pay down debt – Credit cards, student loans, auto loans, etc.
- Improve credit score – reduce debt, increase income, make on-time payments
- Build an emergency – $1,000 in savings
- Save for a house down payment
- Invest in retirement – 401K and/or Roth
Step 2 – Perform a money audit
A money audit will help you figure out what your current financials stand. A money audit will help you determine the following:
- How much money do you currently make
- How much money do you have in savings and investments
- How much debt do you current owe – credit card balances, loan balances
- Review your credit card and bank statement transactions
- Review your credit report
How to perform a money audit?
- Gather information: Bank statements, credit card statements, loan statements, pay stubs, tax returned, etc.
- Track income: Pay checks, earned interest on investment and saving accounts
- Review and categorized expenses:
- rent/mortgage
- utilities
- groceries
- Pet expenses
- transportation (auto loan, fuel, insurance, tolls, etc.)
- insurance (health, life, disability, etc)
- entertainment (streaming services, eating out, activities, hobbies, etc.)
- savings (emergency, vacation, 5 to 6 month living expenses, etc.)
- Debts – monthly payments and balances (credit cards, auto loans, mortgage, etc.)
- Retirement accounts – contributions and balances
- Used the data above to create or revise your budget
- Adjust your budget to meet your financial goals
A money audit can be eye opening. I realized, I spent way too much money on eating out, approximately $45 to $75 per week or $2,250 to $3,750 a year! That is a weeklong vacation!
Step 3 – Evaluate budget areas for improvement to meet your financial goals.
Is your goal to save $1,000? Look for ways to reduce your spending:
- Make a coffee at home verse purchase a coffee on the way to work
- Cook two meals a week verse eating out for lunch and dinner
- Reduce your tv watching time and cancel a streaming service
Think about which budget line items are important to you. We work hard for our money, and we deserve to enjoy life. Spend your money in the areas that are important to you.
- Does getting out of debt bring you financial peace and security?
- Do you have a specific age you want to retire?
- Is eating out with friends once a week something you enjoy?
- Do you want to increase your income and need to take a training course?
Evaluate your budget to reflect the things that are important to you and create a budget line for this activity.
Your budget is going to be a living document which means your budget is going to change many times throughout the year. The more you budget, the better your budget will be and the less changes you will need to make. Creating and following a budget helps one develop discipline, organization, patience, self-awareness, responsibility, and adaptability. These character traits will help one not only be successful in personal finances but will also improve other areas of your life.
Step 4 – Execute a plan for achieving your goals
So, you have made a list of goals you would like to accomplish and completed a money audit. Depend on how big or small your goals, achieving your goals requires breaking them down into smaller and achievable steps. I like to use the SMART goal framework,
S – Specific: We did this in step 1. Example, the goal is saving for a down payment on a house.
M – Measureable: Your goal should be measurable. Examples, how much should the down payment be? A down payment should be 20% of a $300,000 house or $60,000.
A – Achievable: Your goal should be achievable in a realist time frame. Use your budget and money audit to decide achievability or time frame. Example, if your goal is to save the $60,000 downpayment in three years (about $1,670 per month), but you only save $200 a month is not an achievable goal. You will need to increase your income, reduce your spending, or increase your timeline.
R – Relevant: Your goal should align with your values and long-term goals. Example, you want to buy a house so you can start a family, get a pet, or personal enjoyment.
T – Time-bound: Similar to achievable, your goal should have a timeframe to help prioritize your goal.
Summary
We have discussed the four steps to Set Financial Goals and Finally be Successful:
- What do you want to accomplish this year
- Perform a money audit
- Evaluation budget areas for improvement to meet goals
- Execute a plan for achieving your goals
Budgeting will be an important part of achieving your financial goals. It will also help to develop character traits such as discipline, organization, patience, self-awareness, responsibility, and adaptability.
These are the four step and process that I have used over and over to help me set and achieve my financial goals and they work!
I encourage you to join me on my financial journey to living a prosperous life. I will share ideas and tips that have worked for me. Our passion for Her Prosperous Path is to help and inspire the community of readers to reach your prosperous life.
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