People often underestimate the power of a new year’s resolution. In fact, according to a survey done by Fidelity, people who made a financial resolution at the start of 2015 were more than half likely to have better outcomes at the end of the year than those who simply didn’t have a resolution. Indeed, the New Year gives us a clean slate to start afresh and forget past mistakes.
Therefore, setting a goal is important whether or not you intend to stick with it. Simply setting a goal mentally prepares you to take the next step and that is all you need! More importantly, have a system to realize your goal. Think about how it will fit into your life and everything else will fall into place automatically.
Meaningful but realistic goals
If you don’t have much to start with, saying that “I will have a million dollars by the end of 2016” is neither a meaningful nor realistic goal. No one ever conquered a mountain with one giant leap, and therefore, you need to take baby steps. For example, aim for 10% income increment. It is realistic and mostly achievable. However, if you aim to double your income, it might be too hard for an average person.
Sticking to a budget is hard and doing it all year long is even harder. However, if you have a realistic financial plan, then the task becomes easier. There are a few areas you want to set financial goals. One of the most important ones is setting a saving goal – saving a minimum of 20% – 30% of your income. This means you have to cut down on unnecessary spending and keep a close eye on your finances. A financial planning or budgeting app provides excellent assistance in this sort of thing and helps you stay on track each month.
Another crucial area is the goal to increase income. Try to aim for at least 10% and in the best case scenario, an increment of about 20-50% is your best bet. Without income increment, you have no reason for upgrading your lifestyle.
Finally, set investment goals. A sensible investment would be to buy a property whose rental yield is at least 7%. Another example of a meaningful goal is to invest RM50k (or 10% of your net worth in a well researched and good company stock at a good price. Just saving money and salary increments don’t grow your money fast enough, you need to make wise investments.
So these are the three financial goals I suggest you to look into:
- saving goal: 10-30%
- income increment goal: 10-50%
- investment goals
Make a strategic budget for the whole year
To make the task of sticking to a plan easier, you can divide the task into smaller pieces. You can assign a limited amount of finances to spend on necessities, wants, and vacations, etc. On the other hand, allocate another chunk of your income on savings and investments. Each category must stay within its own limits. In this way, you get a full reign on your finances without having the fear of going over budget.
After you’ve set the budget for each category, you can then split it into a monthly budget breakdown. Set a monthly budget and try not to go over this limit each month. It can also be customized to weekly or even daily breakdowns. You are free to make your own unique strategic plan based on your own lifestyle and habits. Just make a realistic plan, break it down into simple steps and everything else will fall into place.
Set up a system to realize your goals
Even after you create a foolproof strategic financial plan, it is easy to give in to temptations. That could easily throw your whole plan into disarray. So you have to set up a system so you can protect your financial plan throughout the year.
One method of securing finances would be to have a separate account for the money to be spent on certain category, for example vacation. If you are following the categorical strategic plan then you may have divided your income across several facets. Take one of those facets and lock it up in an account so it’s difficult to reach and use. When it is time to have your vacation, see how much you already have in your “vacation account” and plan according to budget. If you don’t have enough to go to Europe, then you should settle for a warmer vacation in South East Asia.
Another great method is to identify the actions that will lead to your income increment – then do more of it. For instance, take on important responsibilities in your job or acquire a new a skill that’s highly sought after in your line of work. If you’re an entrepreneur, learn how to spend your marketing budget wisely and expand your business.
Before you finalize your new year resolution, take a look at your other financial obligations.
For instance, you may think you’re too young to write a will, but now is the time! If you already have one, find out whether it requires an amendment and write it down.
Another area which always evolve frequently due to your increased financial knowledge is about how you can maximize your net worth. Is your money (investment capital) put into good use that is maximizing your return and reducing your tax at the same time?
Speaking of investment, check your portfolio regularly to see if it is providing good yield as planned or just eating away your hard earned money. Basically, there are many ways you can still maximize your finances, and all you need to do is put your heart to it and make a resolution!
Finally, after reading all this, you need to make a public commitment. The easiest way is to announce your financial resolution here – by posting a comment below! You will be held accountable to achieve your goals. So set your goals now, put it in the comment section below. At the end of the year, you can come back to shout about how much you’ve achieved. DO IT NOW!