It’s that time of year when we realize we may have indulged a little too much over the holidays, and maybe our bank account is feeling the impact. But not to worry. With a little foresight and planning, you can get back on track and refocus on your financial goals for the upcoming year (and the years beyond).
Ideally, you will have a list of all short-term, mid-term, and long-term financial goals. From there, you can reverse-engineer a spending, saving, and investing plan to meet the goals in each of your categories.
Be realistic with your goals, even conservative. Being in control of your financial situation is about building momentum consistently over time which can only happen if you’re reaching the goals you’re setting for yourself.
As a retirement planner in Annapolis, Maryland, here is my list of potential money goals you can add to help ring in the new year.
Defining Time Horizons
Although everyone’s time horizons will be slightly different based on their situations, here is what I’ll be using for definitions:
● Short-Term Goals - Items that can be reached in 12 months or less (buying electronics, furniture, starting an emergency fund, starting a vacation fund, etc.)
● Mid-Term Goals - Items that can be reached in 2-5 years (buying a new car, paying off student loans, maxing all retirement contributions, etc.)
● Long-Term Goals - Items that can be reached in more than 5 years (buying a home, college savings, starting a business, buying a rental property, etc.)
Just because I list buying a home as a long-term goal doesn’t mean it should be for you. This article is a guide, meant to inspire your ideas about how you want to design your future, and should be adjusted as you see fit - it is not a ready-made prescription. If you have been saving for a down payment, buying a home may be a short-term goal, to be completed by the end of 2022.
Save Money Every Month (Time Horizon: n/a)
This is one you will want to do each month for the rest of your life.
You can start by reviewing your expenses in 2023, or just the last few months (use credit card statements). This is not a time to guesstimate: Use actual copies of the money you spent. If you don’t have access to the previous month’s spending, then track your next few months.
Now, break down your paycheck: How much are you spending on essentials (rent, utilities, groceries, etc.)? How much are you spending on non-essentials (subscriptions, eating/drinking out, etc.)? How much are you investing? How much is flowing through to savings?
The point of this exercise is not to be judgemental, it’s to provide clarity. Once you have clarity you can be intentional about how you are using your money - the first and biggest step towards proper money management. Remember, your goals should determine how much you should be saving.
Start (and Fill) an Emergency Fund (Time Horizon: Short-Term)
Bankrate’s polling showed that 25 percent of those surveyed had no emergency fund at all and 51 percent said they had less than three months’ worth of emergency expenses. Regardless of your savings account balance, emergencies happen all of the time.
Medical costs, car repairs, and job loss - these are all common occurrences. We need to be prepared for them. Failing to prepare will only exacerbate the issue.
Not only that, but a basic emergency fund can work wonders for your peace of mind. It’s easy to get started and before long you will have enough set aside to feel confident and secure in the face of inevitable hardships.
I recommend an emergency fund filled with 6-12 months of living expenses to be kept in cash (savings account), and can be higher based on your number of dependents.
Don’t be a part of the statistic.
Buy a Home (Time Horizon: Long-Term)
For most Americans, buying a home and putting down roots is a lifelong dream.
First-Time Home Buyer Programs and lower interest rates have made it easier for new homeowners to get into starter houses, but it still takes diligence and financial planning. No, you no longer need 20% (if you’re willing to take on PMI and a larger monthly payment), but it is still difficult to put the funds together for a down payment if you’re not intentional about it.
If you want to own a home someday, start putting funds aside now (even if it’s just a little bit). 6-12 months before you’re ready to buy, start talking to lenders to see what you qualify for and to identify any unforeseen snags.
Pay off Debt (Time Horizon: Short- and Mid-Term)
Debt isn’t inherently good or bad, but there are good and bad types of debt.
Credit card debt can come with higher interest rates than other types of debt. This can be a burden, even if you’re doing everything else right. There are several methods to tackle credit card debt, but an interest-rate-focused approach would have you prioritize paying down the balances on your highest-interest debt first.
Personal loans, auto loans, boat loans, and many others are somewhere between good and bad: They can be beneficial tools to improve your quality of life, but usually come with a cost. Depending on the type of loan you have, making extra payments to their principal balances can have a financial benefit while eliminating another bill.
Others
Here are a few more items to check off your list to start the New Year right:
● Calculate your net worth
● Rebalance your portfolios
● Review your credit score
● Make a will (or consider updating it)
● Review life insurance and disability needs (and other insurance policies)
● Consider hiring a financial advisor
A healthy financial situation is a result of having goals in place that influence your thoughts every time you make a financial decision.
The optimal plan for budgeting, spending, saving, and investing is the one you can stick to. If that means setting aside money for self-care (highly recommended) or other activities that may not make sense from a strict budgeting standpoint but will add to your quality of life, go for it.
Proper money management is all about staying consistent, and you will only stay consistent with a plan you enjoy. Take advantage of the New Year by clarifying and resetting all of your financial goals.
Scarborough Capital Management is not affiliated with the US Government or any governmental agency. As such, this content was not approved, endorsed, or authorized by the US Government and/or any governmental agency.
Go to www.ssa.gov for more information about the United States Social Security Administration.
Securities through Independent Financial Group, LLC (IFG), a registered broker-dealer. Member FINRA/SIPC. Advisory services offered through Scarborough Capital Management, a registered investment advisor. IFG and Scarborough Capital Management are unaffiliated entities.
