By Kathy Longo
The first few weeks of January are filled with optimism as gym memberships soar and all those New Year’s resolutions have yet to be tarnished. When it comes to financial goals for the New Year, people should reach high but it is important that the goals really are attainable. “Setting unrealistic annual financial goals is a recipe for failure,” says Kathy Longo, a financial professional and author of Flourish Financially – Values, Transitions, and Big Conversations. “At the same time, you want to stretch and do things you haven’t tried before if you want to break out of the financial box you are in.”
Longo says when people establish unrealistic goals, these are the common mistakes:
Setting goals too aggressive for your lifestyle. If you make a commitment to spend less money, but you have not created a specific plan of action to make it happen, she says the goal is doomed to failure. “Making a New Year’s resolution to save money by eating out only once a week probably doesn’t work for a family with a lot of after-school commitments for their children,” Longo says. Likewise, a professional who travels frequently or people who haven’t prepared all of their own meals in the past may find this goal too much to do on a daily, consistent basis.
Setting unrealistic goals to track spending. It may sound like a great idea to track your spending, but Longo says it’s important to find a realistic solution for accomplishing that. She says the key is to find a system that works for you without overcommitting to tracking every penny, since that can become overwhelming. Some people work best with an Excel spreadsheet or money-tracking notebook. She also recommends exploring tracking tools like Quicken or an app like mint.com.
Setting your annual budget without consulting your spouse. In many households, one spouse handles paying the bills and keeping the family on track financially. But when it comes to setting the annual budget, Longo says both spouses should be included regardless of who writes all the checks. For example, deciding to eliminate a family trip or dropping a gym membership may look good on paper. However, it’s possible the family trip is a highlight of the year for your spouse and dropping the gym membership might conflict with your spouse’s health-oriented New Year’s resolution. All interested parties should discuss the annual budget (and it can be a great teaching tool for older children to be involved as well).
Setting overly aggressive debt reduction. Longo frequently cautions clients against setting aggressive goals to pay down debt or aspire to save a huge amount of money in the New Year. Although reducing debt or increasing savings should be part of an annual budget, the goals once again should be realistic. Longo says she encourages her clients to maintain flexibility in their goals so they can live for today while also saving for the future.
“The reality of today and aspirations for the future don’t have to be mutually exclusive,” Longo says. “Just remember to set goals that, with a little work and sacrifice, really can be reached.”