Every year people across the country set financial goals for the next year. Common goals such as, “I will spend less” or “I’ll contribute more to my savings account” or “This is the year I tackle my debt” are often said yet the follow through falls apart. In fact, a recent CIBC study shows that debt reduction remains on top of the list of priorities for Canadians moving into 2016, especially with growing uncertainty about financial futures as pointed out in another recent CIBC study. Below that goal is the goal to keep up with household bills. Other financial goals highlighted in the study include increasing savings; building on investments; building an emergency fund and savings for a child’s education.
Matthew Keenan, Credit and Education Counsellor at Credit Counselling Service of Sault Ste. Marie and District says, “setting financial goals is just the first step. The follow through is the hard part.” Past studies show that only about 8% of North Americans actually stick to their New Year’s resolutions. To help with setting, and following through on, financial goals for 2016 Keenan offers the following tips and suggestions.
Tip #1 Be Specific:
Setting a vague goal like, “I want to save money” is much like “I want to get fit”, the goal itself is good but the goal is also too big. When we have goals that aren’t specific enough we tend to forget what we set out to do in the first place. “I want to save money” could mean any amount, $10.00 or $10,000, it is just too hard to pin down.
Instead of setting a general savings goal, set an amount you want to save each paycheque towards a total savings goal. For example, if you want to save $2,500 for your child’s RESP by the end of December 2016, you would have to save $208.00 per month starting in January. By doing this, you are setting a concrete goal that you can measure your progress and success against. Also, by having a plan on how you are going to get to your goal, $208.00/ month, you have set in place the strategy to achieve it.
Tip #2 Be Realistic:
Not being realistic when we set our goals really works against us in the long run. While the goal itself might be very specific it may still be unobtainable because our present circumstances were not considered thoroughly when setting the goal. When setting a money resolution you need to look at your income and expenses to determine how much you can save, or the habits you are willing to change, in order to reach your goal.
When setting a resolution you need to consider how much of a change to your daily spending you are willing to make and how long you can keep this change up. If you get a large coffee every day before work it might not be realistic to say that you will completely stop buying coffee on the way to work. Setting all or nothing goals can work against you because if you run out of time and end up buying a coffee on your way to work you may feel like you failed. Do that twice or even three times in a week you may be more likely to abandon your goal because it is too difficult. Instead of setting an all or nothing goal, scale back your resolution. Instead of buying a coffee every day, say to yourself, “I will buy a coffee at most three times a week” that way you save some money and you are setting a goal that is flexible and realistic for you.
Tip #3 Start Small:
Part of setting a realistic resolution is to break down the total goal into smaller parts. By setting smaller goals to help you reach your overall goal you can get the sense of accomplishment that comes with achieving a task while still working towards the bigger picture. If you want to save $2,000 for the holidays next December this can be daunting, however, if you break down the $2,000 in to smaller monthly amounts of $167.00, or $83.50 every two weeks, you won’t have such a daunting amount hanging over your head.
By breaking down your goal into small achievable monthly goals you will stay motivated and it seems easier to achieve then a larger lump sum which may seem impossible causing you to abandon the goal early on.
Tip #4 Set a time limit:
By setting a due date for your goal, you are giving yourself a hard deadline to measure your progress against. You have to work within the timeframe you set helping to keep yourself accountable in the end. Time limits also help to frame how much you have to save each month if you have a monetary goal or act as a self-imposed due date for a behaviour change. For example if your goal was to save $1,500 by June for a vacation in July you know you will have to be able to save $250 a month. But, if your goal is to set up a family budget by March you know that you have only 8 weeks to get everything ready to build your budget helping to add a sense of urgency.
Goal Suggestion #1 Tackle debt:
With household debt continually on the rise and the threat of increasing interest rates always present, now is a good time to start hammering down your debts. Identify who you owe money to and how much is owed. Set a debt free date, again being realistic, and figure out how much above the minimum you will have to apply to each debt to ensure you reach that date.
Better yet, consult an expert. Just as you would for any other task you undertake (like electrical work, or your healthcare), a professional credit counsellor can help you set up a plan to tackle your debt in a timely manner with as little disruption to your daily expenses as possible.
Goal Suggestion #2 Build your savings:
Have a pet? Own a car? Have a house? Any of these, and countless other things will breakdown at some point. It is inevitable that we will have to part with a large sum of money to cover a large expense at some point. The trick is, we just don’t know when. As a result, many people rely on credit to cover these expenses. But, by setting up a savings plan for emergencies and these unexpected expenses you can be more likely to cover them in cash.
Set a realistic savings amount, many experts suggest at least 3 months’ salary at least, and begin putting money away. The trick is to make this automatic and difficult to access. By setting up automatic transfers you don’t have to remember to do anything, it just happens and by making the money difficult to access (a different bank or an account not accessible by debit) you are less likely to “borrow” from savings.
Goal Suggest #3 Build a family budget:
A budget is a powerful tool. Budgets have the ability to show us a lot about our spending and saving behaviour, but they also allow us to achieve our financial goals no matter what they are. Family budgets take into account the income sources for all contributing family members and the expenses of each family member. Expenses include everything from the pizza you bought because you were running late one night to the rent and car payments. Budgets also include any payments towards savings and debt. To set a budget there are four simple steps:
1. Identify and record all sources of income and total that after-tax amount.
2. Track and identify all expenses (use a tracking app on your phone, a notebook, or save receipts) and total your expenses for the month. Be sure to include debt and savings as expenses.
3. Do some simple math. Subtract your expenses from your income.
4. Adjust your expenses by cutting back on things to make your budget balance.
Setting a financial goal is easy. Achieving them is a bit more difficult. There will always be things trying to pull you from your goal, but sticking to the above tips and suggestions should set you on a good start to a having a financially rewarding 2016.