After another year of pandemic stresses and strains, many are setting much-needed financial money goals to get back on track in the new year.
It’s no surprise that more than half of the 3,000 adult respondents during a NextAdvisor survey in June reported they felt very or somewhat anxious about their finances.
However, as 2022 kicks off, there are certainly ways to set financial goals you can actually keep.
Whether you’re looking to start saving up to buy your first home, looking to pay down debt or simply trying to create better spending habits, here are some tips from financial experts to help you do just that.
Avoid creating goals that are too extreme
While it can be easy to feel like you need to achieve all your financial goals at the same time, after such a turbulent two years, financial advisors Patti Handy, a senior mortgage advisor, and Jerrod Ferguson, vice president at Vance Wealth, warn to avoid biting off more than you can chew and keep your financial goals reasonable.
Handy suggests picking two goals and focusing on them, adding that rather than beating yourself up over missteps, just continuing to stay motivated through challenges that arise.
She also suggests confiding in someone with whom you can speak openly to help you stay accountable, whether that’s a friend, family member or financial advisor.
Make it emotional
Though both emotion and habits play a significant part in your actions, it’s the emotion that gets you to take action, according to Erick Arndt, a financial adviser at Virtue Wealth.
Figuring out why you are creating these financial goals will help to put the right habits in place until it becomes almost unconscious, Arndt said.
Handy agreed, adding that though it can be hard to make that mindset shift, it’s important to have that “why” tied to emotion.
Whether it’s because you want stability, peace of mind or to be able to give back, it has to be something that’s a trigger for you, Handy said.
Handy said it also helps to have it written out and posted somewhere so you don’t lose focus.
Figure out where your money is going
Information is power, and Ferguson said the first step in creating better spending habits is to look back at last year’s finances and see where your money went.
Most credit cards and banks give annual statements, so getting the necessary information shouldn’t be hard, and can be an eye-opener for many, as it is often overlooked, Handy said.
All three suggest creating a spending plan by using your last year’s financial spending as a basis.
Rather than setting a budget, create a spending plan, which Handy described as a license to spend money where you decide exactly what you want to be spending your money on.
And though creating that plan is important, taking a pulse on a regular basis and continuing to keep track of your spending is more important as it can help drive future spending decisions, Ferguson added.
Ferguson also suggests getting an update on all debts and accounts, including investments or retirement funds, as well as on your credit report, which are offered free every year by each major credit bureau.
Learn to live below your means
Arndt compares living paycheck to paycheck to running a car at 5000 rpm continuously — eventually, it’ll crash, just like you can’t spend all of what you earn.
Though the goal is to save 20% of each paycheck, Arndt suggests starting with $25 and working your way up.
Similarly, Handy suggests paying yourself first, meaning saving first before paying your debts, which she said is a habit of the wealthy.
Having that money pulled directly from your checking is crucial to ensuring you follow through on the commitment and can allow for some breathing room when emergencies happen, Handy added.
Pay off debt
The first step to paying off debt is sitting down and evaluating your finances in order to figure out what’s causing you to be in debt, said Greg Mahnken, a credit industry analyst at Credit Card Insider, and both Arndt and Handy agreed.
Whether you choose the avalanche method, where you allocate any extra cash toward paying down the loan with the highest interest rate, or the snowball method, where you put that extra money toward the smallest balance, you must first ensure all of your accounts are in good standing and that you’re making all of your minimum payments, according to Mahnken and Handy.
Each method has its upsides, but regardless of which you pick, avoid spending on accounts while trying to pay off debt, as it’s easy to nickel and dime, but really eats into your progress, Mahnken added. If this is hard, Mahnken suggests putting your card in a safe.
Those with large amounts of debt on a credit card with high interest rates may also want to consider trying to negotiate a lower rate with their borrower or a balance transfer, which is basically paying a credit card with another credit card with a fee, according to both Mahnken and Handy.
Do the math with fees in mind to ensure you’ll end up saving money, Mahnken added, noting that the fees are often cheaper than the interest you’d be paying.
Mahnken also suggested reading the terms of your card, as making a late payment often could cancel your offer.