How to set financial goals and stick to them

Have you ever started the new year with the best intentions to set financial goals and overhaul your finances, only to find that a couple of weeks later life happens and the determination fizzles out until the next new year rolls around?

You’re not alone, with only 26 per cent of people sticking to their resolutions for the year in 2020. But is there a way to make your financial goals last this year? We’re taking a closer look at how to set financial goals that you can actually achieve and how you can stay on track to reach them.

Where to begin if your financial goal is…

To save money for the future

Whether your goal is to save £1000 or to save £10k in a year, the methods at your disposal to save money look very similar. Saving money is a habit and as with all habits, practice and repetition are key to building long lasting behaviours. You can make the habit of saving each month as seamless as possible by setting up automated payments and keeping the money you save out of sight. 

There are a handful of people who are motivated by seeing how much they have in savings. For the most part, however, it requires huge amounts of willpower to keep your savings close by and not touch the money. The temptation to dip into your savings account can be strong if you regularly see your savings account, so stashing your savings in a bank account separate from your everyday spending can reduce the urge to spend.

If you’ve struggled to save in the past, paying yourself first can transform your outlook and success with saving money. The idea is that you move money into your savings as soon as you get paid, rather than waiting until the end of the month (when surprise surprise, there’s often no money left to save). When you pay yourself first, you treat your savings as non-negotiable and better still, you can forget about saving for the rest of the month.

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To pay off debt fast

“Clearing debt can feel really daunting,”  says Jonathan Corner, Co-Founder of financial wellbeing app Ilumoni. “If you want to give yourself the best chance of sticking with it, try breaking it down into achievable tasks”.

Dealing with debt can be a vicious cycle, especially with the rising cost of living across the country hitting households with lower incomes the hardest. When it comes to facing debt head on, knowing the details is the starting point if paying down debt is your goal this year. Firstly, take time to review all of your accounts one by one and make a note of any outstanding balances you have. Keep a note of the interest rates charged too. This will help you to build a picture of your total outstanding debt, so that you can make an informed decision about which approach to paying off debt works best for you. 

There are two common approaches to paying off debt: the avalanche and the snowball. With the debt snowball method, the idea is to focus all of your efforts on paying off the smallest debt balance first, regardless of the interest rates. Once you pay off the first balance, you reallocate the funds towards the second smallest balance and so on. The snowball approach is great for keeping motivation up, as you can see progress quickly.

The other method is known as the avalanche, where the focus is on the balance with the highest interest rate first rather than the smallest figure. Strictly speaking, this is often the most cost effective way to pay down debt. However, when it comes to building new habits humans don’t always behave logically. We tend to respond positively to achievement, so the snowball method often leads to the best long-lasting results.

“There’s no silver bullet when it comes to debt and it can take time to get back on top of things,” Jonathan adds. “Be sure to celebrate the victories as that’s what will keep you motivated, so make a note of when you want to have paid off 10%, a quarter, half etc. and enjoy those moments with an inexpensive treat.”

To improve your financial wellbeing

Money can be a tricky subject to handle, and it isn’t just because of the numbers involved. Money is a sensitive and emotional topic, and feeling financially well will look different for each one of us. If you regularly feel stressed about money, it may be a sign that your financial wellbeing needs some attention. Keep in mind that financial wellbeing isn’t about having more money; poor financial wellbeing can affect anyone.

If your goal this year is to get your finances in order and feel better about money, it’s important to dig down into what that looks like in reality. “For some people that means getting out of credit card debt, for others it’s about starting to save,” explains Fleur Iannazzo, financial coach and CFA at WTF Money.  “For others again it’s to do an overview of their whole money situation, or gaining freedom from financial coercion.  So the ‘what’ is important. It needs to be specific, and it needs to be achievable”.

Connecting to your financial goal is essential if you want to stick to the goal and make long lasting change. “People set resolutions and goals which don’t speak to their soul and that’s why they fail. Changing your behaviour is challenging – and if you don’t find a good enough reason to keep going when it gets painful, you are going to fail”. According to Fleur, it can be helpful to allow time and space to ask yourself why your goal is important to you. “Write it down. Then ask ‘and why is *that* important to me?’ – and keep on repeating this until you really feel something in you shift and you start to feel excited about the future.”

And Fleur’s final piece of advice for setting financial goals that stick?  “Start in February, seriously.  Nothing else happens in February”.