Setting New Year’s resolutions is a time-honored tradition, a reason to really ponder what you want to accomplish in the coming year. Unfortunately, most of us waste the opportunity of a new year on half-hearted resolutions to give up sweets or buy less junk on Amazon — resolutions we tend to break about five minutes after the ball drops.
A better strategy for ringing in the new (tax) year is to take time to evaluate the state of your finances and set your savings goals for the year to come. Of course, this means more than simply saying, “I’d like to save more money;” you also need to generate a proper plan. Here are some tips for how to set — and keep — savings goals for the new year.
Identify Your Needs & Wants
Of course, the very first step in creating an actionable plan for anything is to determine what you actually want to do. When it comes to setting savings goals, this starts with going through your finances to get a look at the big picture. A few questions you should ask yourself:
- How much money is coming in, from where, and how frequently?
- How much debt is owed, to whom, and at what interest rates?
- How much do you need to cover your regular expenses (bills, housing, food, etc.)?
- Do you have enough saved for an emergency or job loss?
- Are you saving enough for retirement?
- Will you have any major purchases or expenses (home, car, education) within the next few years?
As you list out your answers, be sure to go through all of your financial accounts, including checking, savings, and investment accounts, as well as individual loan and credit card accounts. Also take the time to check all three of your main consumer credit reports to ensure you include all of your current debts.
Once you have a general idea of how much money you have to work with, it’s time to prioritize your funds so you can set reasonable goals. In most cases, paying off your debts — particularly any high-interest debts — should have top priority (high interest rates = expensive debt), though an emergency fund and retirement savings should also be near the top of the list.
At first, your savings goals will likely be more like ideas than anything actionable. For example, if you have high-interest credit card debt, one of your major goals should be to “Pay off my credit cards.” However, you’re going to need to flesh out your ideas to turn them into real, actionable plans.
A common method for developing focused goals goes by the acronym S.M.A.R.T., a system that describes the five things a good goal should be:
- Specific: Your goal has a specific target
- Measurable: Your goal has a measurable progression
- Achievable: Your goal includes a plan of action
- Realistic: Your goal is realistically possible
- Time-Bound: Your goal has a set end-date
For example, say your primary savings goal for the next year is to save up enough to purchase a home. The general goal might be, “I want to buy a house.” However, the S.M.A.R.T. goal would be something like, “I want to save $500 a month so that I will have a total of $6,000 by the end of the year to use as the down payment for a house.”
Use Tools & Automation
We all know that we should build and maintain a budget to keep on track to our financial goals. But, when many people think of the dreaded “b-word,” they conjure images of spreadsheets full of numbers — not everyone’s favorite thing.
These days, however, there’s no need to be afraid of budgeting because there’s an app (or 20) for that. Yes, in a few swipes and taps, you can find dozens of different budgeting and savings apps that can make meeting your savings goals a snap. From basic apps that help you manually track your spending to more complex platforms that connect all of your financial accounts in one spot, there’s a budgeting app out there for nearly any type of saver.
But, that’s not the only tool in the modern saver’s belt. You can also take advantage of the same thing used in dozens of different industries to save time and energy: automation.
For example, many banks will allow you to set up automatic transfers from your checking account to a savings account; set it up so that a transfer is made right after you get paid so you never have to think about it. Or, try a third-party savings app; the Acorns platform, for instance, will automatically round up purchases made with a linked credit or debit card and invest the difference.