Goal Setting and the New Year

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You have probably heard the statistic that over 80% of New Year’s resolutions fail. But a more important story may be that just 3 in 10 Americans make resolutions in the first place. If you don’t set a goal, you’ve already failed.

Do you have a goal for the new year? Do you have a plan in place for reaching those goals? If you’re like many people, getting your finances in order could be a great first step. Good financial habits make it possible to afford other big-picture life goals like paying off a car, buying a house, getting married, retiring, or even traveling the world.

Do Goals Really Make a Difference?

In his book What They Don’t Teach You in the Harvard Business School, author Mark McCormack references a 1979 study of students in the MBA program. Students were asked whether they had made any goals for the future, if they had a plan for accomplishing them, and whether those goals were written down. Then, 10 years later, the study followed up to see how the students did.

Only 13% of interviewed students had a goal in mind, and just 3% had written those goals down. Ten years later, that 13% of students with goals were earning double their goal-free classmates. But the 3% who had written down their goals were earning 10 times as much as the other students!

Clearly, it’s not enough to just have a goal in mind. Success also means having a plan in place to accomplish what you want. Fortunately, planning doesn’t have to be complicated. Here is a goal-setting worksheet you can download to walk you through the steps as we go:

What if I Don’t Know What I Want?

If you don’t have any life goals, how do you choose them? Start by interrogating your values.

What kind of person do you want to become? How do you want people to remember you? What do you like to do with your time? What do you want to avoid doing or becoming? Answering these questions for yourself can help uncover your big-picture life goals.

At the same time, know that goals don’t have to be lofty or original. Many people share the same goals: being healthy, starting a family, having nice things. In terms of financial goals, there are some common goals that can benefit anyone:

If you start with basic goals focused on building good habits, you’ll be in a good place to succeed when you find your passion or are called to do something bigger with your life.

How Do I Set Goals?

To succeed, your goals should have three components: a purpose, a cost, and a timeframe. A purpose defines what you want to accomplish and why. Cost and timeframe specify how much money and other resources you need to save up by when. For example, instead of just saying, “I want to be better with money,” set yourself a goal for building an emergency fund:

  • Purpose:
    Experts recommend saving enough to cover 3-6 months’ worth of living expenses. Your purpose could be, “I want to save up 5 months of living expenses so I am prepared to handle a job loss, unexpected expense, or other emergency.”
  • Cost:
    To calculate how much you need, you should add up your actual monthly expenses and multiply this by the number of months you want to save for. If you spend $2,000/month, the cost for your emergency fund would be $10,000.Keep in mind that some costs are less tangible than dollars, like the time and energy required to achieve something. There are also opportunity costs. Every dollar and every minute of your life can only be spent toward one thing at a time, so reaching some goals may mean giving up on others or at least putting them on pause.
  • Timeframe:
    At a reasonable rate of savings, when can you expect to reach your goal? (Or, working backward, if you have a deadline in mind, how much do you need to save monthly to reach it?) Remember that you can only save money that doesn’t go towards your spending, debt payments, and taxes.Setting a realistic timeframe helps you determine how much and how often to save. It also helps you decide how to invest your savings. In general, money for a shorter-term goal should stay in a savings account or short-term debt instrument like a CD, while money for a long-term goal can be invested in a diversified portfolio of stocks, bonds, and other investments.

After you define each goal with its purpose, cost, and timeframe, prioritize them and tackle them in order. Sometimes you will save for multiple goals at once. For example, if you need a car, you might save regularly for a car purchase while continuing to contribute to your 401(k). Once you buy the car, you might increase your 401(k) contribution. It all depends on your priorities and unique circumstances.

Depending on your goal, it can be helpful to speak to a trusted mentor or advisor who can help you understand the real cost of what you’re trying to accomplish so you can create a more realistic plan.

How Do I Meet the Goals I’ve Set?

Have you filled out your goal-planning worksheet yet? If so, you already have a few action steps written down. Now, you need to put your plan to work by taking those actions and tracking your progress so you can continue measuring success.

If you’re trying to save a certain amount per month, you’ll have to build the habit of setting that money aside and monitoring your savings. If you’re trying to cut back on spending in certain areas, you’ll need to monitor your spending and find alternatives when the urge strikes to splurge.

Holding yourself accountable can be hard. It’s often easier if someone else knows about your goal and can help gently hold you to your word. Consider sharing your goals with a trusted friend, partner, or mentor. They may even have goals of their own you can help hold them accountable to, so that you both can achieve your plans for the new year.

This material is for informational purposes only and does not constitute financial or investment advice. Please consult a qualified financial advisor for personalized guidance tailored to your individual circumstances. Links to third-party content are provided for informational purposes only and do not constitute an endorsement by John Moore Associates.

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