Incremental steps will get you closer to a healthier financial plan.
Many of us may think waiting ‘til January 1 to implement financial change is the way to go, but trying to tackle multiple goals at once may just be too much. It makes much more sense to slowly and steadily tackle your financial objectives – so why not start now?
Changing habits may not come as easily as you think, especially if your particular financial goal has a built-in deadline, like saving for college. But any step in the right direction counts, so why not make incremental changes toward your goal by setting smaller targets?
If your aim is to invest more in retirement accounts, use any raises or bonuses to increase your automatic retirement contributions. Treat any unexpected money – a tax refund, an inheritance or children finishing college – as an opportunity to bump up your savings, even by 1%. It’s likely you won’t miss that money in your day-to-day life, but could see it pay off if it starts compounding year after year.
Bottom line: Those smaller milestones – and the feeling of accomplishment that comes with achieving them – will make whatever you’re striving for that much more attainable.
One Thing at a Time
Habits, including good ones, change over time. Once you figure out your short-, mid- and long-range goals, work with your advisor to set a plan in place to help you achieve what you want in the appropriate time frame. He or she has access to powerful modeling software that can reveal possible outcomes for various situations, including market setbacks, job changes and the possibility of retiring early.
Bottom line: Change one behavior at a time, not your life in one fell swoop.
Perhaps you’ve created SMART goals for your career development. The same concept can apply to financial planning. Financial objectives generally come with a price tag, which may need to be accounted for one time (e.g., vacation) or as an ongoing expense (e.g., tuition), but which usually can be estimated fairly accurately if we account for inflation and build in a margin of error. Most of them also have a time horizon, such as our years to retirement or the ages of our grandkids. All of that can be wrapped up by adding specificity to your goals, making them more concrete and keeping you motivated should you come across any obstacles.
If your goal, for example, is to live debt free, including paying off your cars in five years or less, here’s how you can get SMART with it.
Specific: We will pay off outstanding debt on three family vehicles.
Measurable: My husband and I will pay an extra $200 a month for each car.
Attainable: Yep. Not too outlandish, right?
Realistic: Can your income support an additional $600 in monthly payments? Do both you and your spouse agree on this plan? Then the answer here is yes.
Time-limited: Our family will pay off our cars by December 2023.
Bottom line: While SMART goals are achievable, they could also be inspirational. Paying off your cars may not seem exciting, but living debt free or saving toward a vacation may motivate you to persevere.
Talk about your goals with family, friends and your professional advisors. Talking things out with people you trust helps you gain clarity and comfort when it comes to financial decisions. They can offer support when you face challenges, clear obstacles for you and champion your successes.
Bottom line: Support is essential to changing habits for good, and makes the process much easier and social.
Your Personal Benchmark
The progress you should be making toward your unique objectives over time constitutes what can be thought of as a personal benchmark. While many people like to compare their portfolio returns against the S&P 500 index, this may not be the best way to judge how a portfolio is progressing. If you’re well-diversified, it’s unlikely that you have 100% of your wealth tied up in domestic stocks that mirror the index. If your goals include a vacation home and you’re making steady progress toward that, what difference does it really make whether your portfolio is leading or lagging the S&P 500?
Keep in mind, achieving your goals is an ongoing process that takes time. But the best way to measure success is if you have a specific goal in mind and a general time frame to accomplish it. Things can and will happen to knock your plan off track; the key is readjusting as quickly as possible so you can stay focused on what you’re hoping to achieve.
Bottom line: Know what your goal is and what it’ll take to get there. Then measure progress against the goal, not a seemingly arbitrary benchmark.
Start Where You Are
Whether you take on one or 10 new goals, focus on those that have the greatest chance of improving the quality of your personal and financial life – now and in the years to come.