The new year often comes with renewed optimism, and with it a list of resolutions. You may have some financial to-dos on that list to build a healthier relationship with your money, and if you do, here’s a statistic for you:
Studies show that only 8% of people who set resolutions actually accomplish them.
If you’re committed to reaching your financial goals in 2022, consider making (and sticking with) these five resolutions:
1. Create a S.M.A.R.T. Plan
Most resolutions are vague. Saying you’ll save more or learn to invest sounds great in theory, but without a properly thought-out plan on how you’ll achieve it, you’re bound to fail.
Create a S.M.A.R.T. plan for your financial goals instead by making sure they’re:
- Specific - State exactly what you want to achieve and make it tangible.
- Measurable - Write down the dollar amount associated with your goal so you can track your progress and know when you’ve reached it.
- Attainable - Create a step-by-step plan on how you’ll reach your goal, including the resources you’ll need and the changes you’ll need to make. Achieving it should be realistic.
- Relevant - Ensure what you’re trying to achieve is aligned to your values and meaningful to you.
- Timely - Set a target date for when you need to achieve it.
2. Pay Yourself First
Paying yourself first is exactly what it sounds like: you’re "paying" money to your future self before you pay anyone else. Set a goal of putting aside at least 10-20% of your monthly income for your future S.M.A.R.T goals, including retirement, and then automate the transfer from your paycheque or chequing account to a separate savings or retirement account for those goals.
If you don’t pay yourself first, there’s a good chance you won’t pay yourself at all. When you make saving automatic, you prioritize the things that are most important to you and keep your eye on the big prize.
3. Create a Budget
Studies have shown that we underestimate how much we spend by 30% on average. Tracking your spending will tell you with certainty if your money’s going where you want it to go.
Start by writing down your expected monthly household income after tax.
Then divide your expenses into the following:
Fixed expenses. These are ongoing and necessary costs that don’t change month after month. They include things like your mortgage or rent, phone plan, car insurance and—this is important—the money you’ve resolved to pay yourself first.”
Variable expenses. These are necessary costs that change depending on your usage and choices, such as groceries and gas.
Once you have a good sense of how much money goes towards these two types of expenses, you’ll know how much you have left for your “wants”, or discretionary items.
Discretionary expenses. These are all the non-essential items you spend money on voluntarily, such as subscriptions, eating out, and entertainment.
Review your budget against your actual expenses by comparing it to receipts or your credit card statements. If you’ve overspent, this is an opportunity to reflect on why and whether there are better choices you can make going forward. Then adjust if necessary. Just that small awareness can lead to big changes in your spending habits and ability to manage debt.
4. Automate Your Investments
There are lots of reasons why people put off investing:
- They tell themselves they can time the stock market and will go all-in when the market is cheaper.
- They get overwhelmed by the thousands of investment options and stop in their tracks due to ‘analysis paralysis.
- They think investing can wait until they’ve knocked off their other financial goals, like paying off debt.
The reality is no one can time the market or the performance of a particular stock or mutual fund and certainly not consistently. By starting early (or as early as you can), you take advantage of the power of compounding and let your wealth exponentially grow for you over time.
Get out of your own way by making your investments automatic. Put a specific amount of money toward a regular monthly investment – this can even be your “pay yourself first” money. Decide on a consistent allocation strategy: “Canadian equity mutual funds,” for example. By automating your investments, you take advantage of “Dollar Cost Averaging”, which helps balance out the highs and lows of unpredictable markets.
5. Find Your Accountability Team
Navigating the financial world is overwhelming. If you don’t have someone holding you accountable, it can be easy to take the path of least resistance or do nothing at all. You’re much more likely to change your spending habits and stay on top of your goals when you have someone you can turn to for guidance. Even better if that same person will check in with you regularly about your progress.
Find a trusted partner or friend, hire a money coach, or call your financial advisor to give you professional advice and encouragement. With their help, you can achieve your financial resolutions in 2022.
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By Saijal Patel, financial-wellness advocate and founder of Saij Elle.