While many people make New Year’s resolutions, financial goals often get overlooked. Setting intentional financial goals is like creating a roadmap to align your financial strategy with what matters most in your life — whether that’s buying your first home or setting up a college fund for your child. Let’s dive in and discuss the importance of setting financial goals early on, steps to set meaningful goals, common pitfalls to avoid, and tips for staying on track.
Why Setting Financial Goals Matters
We don’t always think of life from a financial perspective, but many life events require careful financial planning. Marriage, starting or growing a family, career transitions, buying a home, and approaching retirement all require financial planning. Setting clear financial goals provides the clarity and direction that you need to build and preserve wealth.
These goals must also be paired with an execution strategy to help you stay on track and make regular progress. While it’s never too late
to start setting financial goals, the earlier you get started, the better off you are as there are compounding effects to early planning. Below, we provide specific steps you can take to get started.
Five Steps to Set Meaningful Financial Resolutions
✓ 1. Assess Your Financial Position
Understanding your starting point is crucial. A best practice is to make a personal balance sheet, listing out your assets, liabilities, and cash flow. This is also an opportunity to review existing insurance coverage and retirement accounts.
✓ 2. Define Expected Milestones
What major life events do you expect in the next five years? What about ten years? Each of these will have unique financial implications, so it’s best to address them early. While five years may seem a lifetime away, one of the most fruitful strategies is to break down goals into incremental pieces that you can track progress against on a more manageable timeline (e.g., over the next six months vs six years). While completing this step, consider both personal and professional transitions. For example, you may need a certain level of savings to feel comfortable changing industries or going from full-time to semi-retired.
Working towards financial resolutions often takes time. It’s important to remember that making headway towards a five or ten-year goal over the next year is a goal in and of itself.
✓ 3. Move from Life Goals to Financial Targets
Once you have your goals laid out, quantify what each goal requires financially. Use this to set specific, measurable objectives (short and long-term). Let’s say you want to start your own business. How much of a savings buffer will make you feel comfortable enough to do so? Calculating that figure and coupling it with a time horizon for when you want to start your business will allow you to break down a yearly savings target.
✓ 4. Prioritize and Create a Timeline
Not all goals carry equal weight. While you may be working towards achieving financial freedom over the next ten years, you may deem saving up for your teenager’s tuition more important in the short-term. It’s best to make these prioritizations explicitly so that you can balance any immediate needs with longer-term aspirations. And don’t forget to build in flexibility for life’s uncertainties.
✓ 5. Develop an Implementation Strategy
An implementation strategy encompasses many parts. The basics include choosing the appropriate investment vehicles, considering the tax implications of your investment strategy, and aligning your risk tolerance with your time horizon. We recommend scheduling a consultation with an advisor to help think through these considerations.
Avoid These Pitfalls When Setting Financial Goals
✗ 1. Setting Vague Goals
Don’t settle for “save more” or “cut excessive spending”. These could be starting points for a financial resolution brainstorm, but are too vague to be your ultimate financial goals. Instead, aim for specific goals like “save $10,000 for an emergency fund by the end of the year.”
✗ 2. Ignore Tax Implications
Selling large amounts of stock, selling a home, and many other financial events can trigger taxable events. It is wise to look into tax-efficient strategies as they can help you accelerate your progress. Conversations with your financial advisor can be beneficial to discover such strategies.
✗ 3. Set It and Forget It
Many financial products only need configuration at setup, and then can be left unmonitored. However tempting this is, it can be a dangerous strategy when it comes to establishing and making progress towards financial goals. Regular review and adjustment are key. As your life changes, your goals and execution strategy need to be updated accordingly.
✗ 4. Doing It Alone
Complex decisions require expertise. While it can be tempting to handle your finances independently, professional guidance is invaluable and can provide the necessary perspective to make informed decisions.
Make Your Financial Resolutions Stick
Remember to maintain systems for accountability, like quarterly reviews with your financial advisor to track your progress. These types of check-ins are a great catalyst for goal review and adjustments. Always remember to celebrate the wins along the way and enjoy the progress you have made. Little celebrations can provide powerful motivation for continued success.
Feeling inspired to set your financial resolutions for the new year?
Start with professional guidance from Cary Street Partners. Review our full slate of wealth planning services or schedule a consultation today.
Paige W. Garrigan
Chief Marketing & Transitions Officer, Managing Director
The Wealth Wisdom Series is curated by Paige W. Garrigan, drawing from the experience and input from Cary Street Partners’ Financial Advisors. Collaborating internally with the team she gathers pertinent and timely topics for readers. With over 30 years of experience in the financial services industry, she has acquired a wealth of knowledge across various facets of the industry ensuring comprehensive insights for readers.
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