How to set achievable financial goals
Setting realistic financial goals is key to achieving success. However, knowing which goals to prioritize and how to reach them can be difficult. In fact, just 9 percent of Americans achieve their New Year’s goals, according to January 2018 data from Statistic Brain. The reason may be that we’re bad at setting reasonable expectations. Whether you decide on a money-related goal because of a life event, such as having a baby or buying a house, or just to improve your financial health, it’s important to consider your priorities and make sure your financial goals are specific and achievable.
We’ve outlined four realistic financial goals that can help improve your financial health, as well as strategies you can use to help achieve these goals. Not all of these goals may apply to you right now, but achieving even one is a great start.
1) Pay down debt
Owing money on credit cards, mortgages, vehicles and student loans is a reality many Americans contend with. While trying to pay off all of your debt is a reasonable idea, it is also a difficult goal to reach. Simplify your goals by breaking them down: Look at your debt and decide on a percentage you’d like to shrink it by. Resolving to eliminate 5, 7 or 10 percent of your debt gives you a more realistic way to approach reducing what you owe.
In addition, be savvy about the way you pay down debt. Not all debt is created equal, so determine the right approach to achieve your goals. For example, you likely want to pay down high-interest debt first and focus on other debt later.
Setting smaller, short-term goals can give you a psychological boost when you reach them.
2) Make savings simple
If you set a goal to save a big amount in a certain time period, there’s a chance you’ll fall short. Financial goals that are many months away can be harder to achieve, and if you have a month or two with unexpected expenses, you may have to pause your savings effort. That decision not to save might seem like a setback.
Instead, give yourself specific, smaller, short-term (or seasonal) goals. Maybe you want a new smartphone, would like to take a trip somewhere or have your eye on a holiday gift. Setting smaller, short-term goals can give you a psychological boost when you reach them. If a big-ticket item is the ultimate goal, consider setting certain benchmarks along the way so you can achieve this same effect while still taking longer to save.
Tip: Pay yourself first by setting up automatic transfers from your checking account to your savings account or having some of your paycheck directly deposited into savings.
3) Track your spending
If the idea of setting and maintaining a budget sounds a bit overwhelming, you’re not alone. Just 41 percent of U.S. adults establish and maintain a budget, according to a March 13, 2018 survey conducted by the National Foundation for Credit Counseling. Rather than starting with creating an entire budget, you might choose to track your spending so you have a better sense of where your money is going each month.
If monitoring your spending by tracking monthly expenses and daily receipts seems difficult, technology can help. Apps, along with mobile and online banking, offer solutions for tracking your spending and identifying areas where you can make cuts.
4) Invest in yourself
Many Americans are struggling to save for retirement. In fact, a June 2018 Transamerica report shows the median amount of Baby Boomers have set aside is $164,000—an amount that will provide a relatively low standard of living in retirement, even with Social Security and other forms of income. Start saving for retirement as soon as possible, so your money has more time to potentially grow. Think of it as investing in your future self.
Take a look at how you’re planning for retirement to see if you’re maximizing your resources. Can you contribute more to your 401(k) at work? Have you considered an IRA? Remember, retirement plans often offer tax advantages. Taking time to research what options are available, and taking advantage of the ones that make sense for you, can make a big difference in the future.
Don’t let yourself off the hook
Setting goals is important, but sticking to new behaviors is tough. To help hold yourself accountable, set an alert on your calendar to check in on your goals each month. If you’re struggling, try thinking of another way you might be able to reach your goal. You might start smaller and look for ways to increase your savings amount over time. With the right planning and purpose, you will be able to build lasting habits that guide positive changes in your financial life.
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Bank of America and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.