You can set goals whenever you feel inspired to do so, but the new year tends to be a popular time to reflect and brainstorm about possible improvements for the coming year. Last year, I outlined how to set achievable financial goals: In short, make sure the goals are realistic and measurable so you have hope to achieve them and know when you do achieve them!
Making realistic and measurable goals is always important. Once you master these essentials, you can take further steps to make even better goals for yourself going forward. Any additional qualities in your goals should not supersede their realistic and measurable qualities, but they can make your goals even better.
Choose a Goal You Want to Achieve
This sounds obvious, but you should choose a goal that actually inspires you. While discipline—not inspiration—is the behavior that keeps you on the path to goal achievement, actually caring about your goal will push you to set up the disciplined plan required to achieve it.
Many of us have a tendency to set goals that we feel we should want to achieve. We decide to maximize our 401(k) because we should or reach a 25% savings rate because our friend said that is a good savings rate. While these are measurable and realistic goals, if you do not know the purpose behind your goal, it is less likely you will achieve it.
Instead, choose a goal that has a powerful why supporting it. “I want to achieve a 25% savings rate so that I can retire by age 50,” is a much more powerful goal than achieving a 25% savings rate without a why. Maximizing a traditional 401(k) to lower your taxable income for the next year and put the additional income towards your vacation fund is a much more inspiring and tangible goal than simply increasing your 401(k) contribution.
There are many steps we all should be taking to improve our finances, but when you choose which step comes next, make sure you know why that step is important to your specific financial situation. Better goals are goals that allow us to feel positive effects personally.
Make Achievement Easy
You are more likely to achieve your goal if it is easy. In the financial world, easy tends to mean “automated.” If you set that 25% savings rate goal, set up automatic transfers that let you achieve a 25% savings rate before you have a chance to consider using your money towards other purposes. This may involve maximizing your 401(k), IRA, HSA, or other accounts.
Automatic transfers work for many goals. If you want to pay off debt quickly, build an emergency fund, save for a big spending goal in a high-yield savings account (HYSA), maximize retirement contributions, save for a downpayment on a home, or many other goals, money transfers can be automated. When choosing to contribute to your 401(k) or HSA, you may even be able to have the money taken out of your paycheck by your employer and sent right to your account. For other accounts, like an HYSA or IRA, just set up a transfer to happen immediately after your paycheck hits your account, before you have a chance to spend it.
We are much better at achieving our goals when we do not have to think about them. I save half my net income by automatically sending it to my Roth 401(k), HSA, IRA, brokerage account, and Fundrise account before I ever have a chance to touch it. By sending it to these accounts before I have a chance to spend it frivolously on short-term goals I do not value, I know that removing the money would mean paying more taxes, and sometimes penalties, so I leave it to grow without my interference. Sending the money to work for you before you can avoid your goals makes it easy to maintain financial focus.
Consider a Fun Financial Goal
Particularly if you are already in a good financial place where you are debt-free, have an emergency fund, and invest at least 25% of your net income, consider a fun financial goal! If you are happy with your current financial situation and the likely outcome of maintaining your financial situation, you have the opportunity to put your money to work to have fun rather than just providing financial security.
Consider opening a HYSA for a fun goal, like that three-week luxury vacation or the updated car you want but don’t need. Once you achieve a responsible financial baseline, consider spending that is fun and adds joy to your life.
Just do not go into debt for any of this fun spending. If you want the new car, save up so you can buy that car in cash. Do not just save up for the down payment and commit yourself to a five-year (or longer!) car loan with an expensive monthly bill. Fun purchases are not essentials, and you should not go into debt for them. But that also does not mean you should not make those fun purchases.
Taking a bit longer to make those fun purchases will also make you appreciate them more. This tends to help you resist succumbing to lifestyle inflation because you recognize that these are nonessential, fun purchases that require saving diligently to achieve your spending goal. I experienced this when buying my car, and it allows me to acknowledge that owning any car while living where I live is a luxury rather than a necessity.
Goal-Setting on Your Terms
Regardless of what financial goals speak to you at the moment, set a goal that is important to you, and choose a timeline that makes sense for you. We can get stuck in the “new year, new goal” mindset, but you can really set financial goals at any time. If March is a better time for you to start a new financial goal, set that goal in March. There is no need to have January 1, 2024, become the day you change your financial future.
Set goals whenever it makes the most sense for you. Just make sure they are realistic and measurable so you know when you have achieved your goal. Then set a new one, even if it is the middle of July rather than January 1, 2025.
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