Small Goals, Big Impact

Like many of you, I started the new year with a list of personal goals to make the most of 2021.  Some of my loftier “bucket list” goals have been on hold during COVID and will likely remain on pause for now - the reality is, I won’t be running any distance races or setting off for a new continent this year.  Maybe 2021 is a perfect year to focus on goals a little closer to home.  I’ve decided this is the year to set small but impactful goals to establish healthy habits so I’m ready for those big adventures when the opportunity arrives. 

As a runner and a financial planner, I find many similarities between fitness and financial wellness.  I can’t set out to run a marathon tomorrow in the same way I can’t save for retirement in a single day.  Both require consistent small efforts over an extended period of time.   Three or four miles a day all year long sets me up for long-term success in the same way $300-$400 per month for a few decades builds my retirement nest egg.  In both cases, slow and steady wins the race. 

 When you’re thinking about financial wellness in 2021, start with three simple financial goals that will help you fine-tune your finances and set you up for success over the long term.

Consider setting financial goals in these three areas: your income, your savings and your spending rates.  These goals can be bite-sized and achievable, involving small, specific activities each month that help you build good habits and make meaningful progress throughout the year.  

 Income:  If you’re a salaried employee, increasing your income may seem impossible, but there are ways to increase how much of your hard earned income you keep by making smart tax decisions and optimizing your employee benefits.  Are you earning your employer’s maximum 401(k) match and taking full advantage of pre-tax set-asides in your Health Savings Account or Flexible Spending Account?  Does your employer cover cell phone or home internet expenses or offer wellness benefits like discounted gym memberships? 

 The first place to look is at your employee benefit package.  Most companies describe the details of their plan on an employee benefit website or in a detailed brochure.  Identify your company’s 401(k) retirement plan match and determine how much you need to contribute to earn the maximum match from your employer.  Not contributing enough to earn the match is like leaving money on the table. 

 Savings: Establishing a regular habit of saving each month is the most efficient way to achieve your long-term financial goals, whether that is saving for retirement, your children’s college education, or other goals like a down payment or vacation.  If you earned a raise this year, can you increase your monthly savings by a commensurate amount? Can you bump your savings rate up just 1% this year? Even a small increase can have a huge impact over time. 

For example, let’s say you’ve set a goal to save for retirement in an Individual Retirement Arrangement (IRA), but you’re not sure where you’ll come up with $6000 to maximize your 2021 IRA contribution.  Much like the marathon example, you need not come up with $6000 in one day - try setting aside $250 per paycheck or $500 per month over the course of the year to ensure you maximize the savings opportunity.  If you’re over 50 years old, you can step it up a little more: $7000 per year, or $583 per month, $291 per paycheck.  The simple step of putting your IRA savings on autopilot with an automatic monthly contribution can set you up for long-term success. 

 Spending: I’m not a big advocate of budgets that require you to keep track of every penny you spend.  Most of us don’t have time for that level of detail, and generally, it isn’t necessary.  These days, one of the easiest ways to check your spending is to pull open your monthly credit card statement or your bank’s built-in budgeting tool.  A quick review of your statement will help you identify where your money is going.  Your bank’s phone app likely has a budget tool, one click and it shows you a graphic of how you spend your money – housing, groceries, entertainment, etc. 

The goal here is simply awareness, not shame.  Are there charges for services you’re no longer using?  Are you paying for five entertainment streaming services when you really only watch two of them?  Most importantly, are you spending money on what is most important to you?  Small fine-tuning steps here free up cash to spend on what is most important to you.   

Identifying small, achievable financial goals that lead to progress each month will help you establish strong financial habits and reap meaningful benefits over time.

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