If you only have a fuzzy recollection of where your money went in 2019, the new year is the perfect time to schedule a financial checkup. Be warned. At the end of this appointment, you’ll leave with a prescription different from those issued in years past.
Old Prescription: Forget past money mistakes. Only focus on the future and achieving one financial goal at a time.
While squinting or narrowing your focus to reach a single goal might help you quickly build an emergency fund or save for a Hawaiian vacation, such tunnel vision can lead you to neglect long-term financial goals, such as saving for retirement. Recalibrate your goals and pinpoint money milestones that can serve you now and in the future.
Follow these steps to sharpen your financial vision in the new year without neglecting your overall financial health.
Step 1: Look to the past.
It’s the beginning of a new decade. The excitement might tempt you to make plans for the future while ignoring the financial missteps of the past. Slow down. Examine your spending habits over the past 12 months. If possible, make a list of significant purchases made in the last decade.
Do you recognize any patterns?
Did your lifestyle become more extravagant with each salary increase? Were tax refund checks treated as “fun money”? Note the times you received an influx of cash and how you used it. If those opportunities were to present themselves again today, what could you do differently? With a good idea of how you’ve spent money over the years, you’re in a better position to make different choices for the future.
Step 2: Envision the future, but don’t forget the past.
Your financial past doesn’t hold the key to your financial future, but it can help you focus on critical actions you need to take in the new year. For example, have debt payments increased with each passing year? Has your savings account dwindled with each holiday season, birthday, or special occasion? Your answers might help identify and prioritize your short and long-term financial goals. They might also uncover simple ways to reduce spending and redirect funds toward those goals.
Step 3: Set realistic timelines based on your budget.
An optimistic mindset is necessary to achieve any goal. However, setting unrealistic financial targets can lead to disappointment. Stay positive by matching goal timelines with available financial resources. For example, paying off $50,000 in student loans in six months is unlikely to happen on an annual income of $58,000. Conversely, waiting until you pay off a hefty loan balance before contributing to a long-term financial goal, such as retirement savings, can cause you to miss out on annual tax savings and compounding interest available with an Individual Retirement Account.
Since goal timelines will largely depend on your budget, accept that certain goals will take longer to reach than others. That doesn’t mean you can’t speed things along. Look for ways to earn extra money or reduce expenses, but don’t attempt to accomplish too much too soon. Remember, steady progress is still a marker of success, especially with money.
Use a Financial Calculator to help guide your goal planning in 2020. These tools can help you see how time, contribution amounts, and compound frequency influence short and long-term goals.
2020 Prescription: Use the past to your advantage. Reflect on your spending history when planning your financial future. Set realistic short and long-term goals for overall financial health.
Clear financial vision will allow you to recognize which actions no longer support your goals and which goals should be revised to account for life changes, e.g., getting married, having a baby, etc. A new year can be the fresh financial start you need to take control of your money.
Would you like some guidance and advice to help you realize your 2020 vision? Contact Traditions Bank today to discuss your goals!