Do You Know Where You Are Going?

George Harrison sang, “If you don’t know where you’re going, any road will take you there.” January is the traditional time to look at where we are going and make resolutions to take the right road to get there.

I used to wonder why I bothered with New Year’s resolutions. After all, they tended to wind up in the guilt pile, unfinished. A while ago I changed my approach and started making my goals on the fly throughout the year. I’ve tried different ways to track my progress. Heck, I’ve tried several ways just to remember what my goals were, a few months after I made them. With that in mind, I’m going to share my goal experiences with you as well as some popular financial goals for 2013. If anything strikes a chord with you, that’s great. Steal it.

The One-Word Approach

I came up with this one when there was a rash of single-word book titles. Why not a simple one-word resolution? My first one was “Tact”. I wanted to be a more tactful person. I knew I couldn’t do this one alone. So I begged the most tactful colleague I knew to call me out whenever she heard me using less than my desired standard of tact. She was generous enough to help me rehearse difficult conversations and emails. At the end of that year, she gently mentioned that, while I had made great progress, it wouldn’t hurt to make this a two-year goal. And so I did.

Don’t feel pressured to achieve the goal in one year. Some goals involve substantial behavior changes. Those can take more than one year to accomplish.

The Future Picture Approach

The first time I meet with a new client I ask them to imagine what they would like to have accomplished with me once we have completed our work. I jot down their answers and refer to them while we work together on their divorce financial issues. Thankfully, you don’t have to be getting a divorce to use this tool.

What do you want your life to look like in one year? In ten or fifteen years? Imagine how you would like your life to be different from what it is today. This is the first step in creating financial goals.

Popular Financial Resolutions for 2013

After reviewing several websites and blogs, I came up with a three popular financial goals for 2013. If you would like a few suggestions for your financial resolutions, try some of these out.

Save Save Save

This one comes in a number of flavors. Goals might include creating an emergency fund, saving some percent of your post-tax income, refusing to consider windfalls as splurge money, or maxing out your 401(k) contributions. Make saving a priority and pay yourself first. Don’t wait until all your bills are paid, because you will end up neglecting your savings goals. Most banks and investment companies have processes that enable you to deposit money directly from your paycheck or checking account into a savings or investment account.

Next pick two or three spending categories such as entertainment and clothing. Try to trim those expenses 15 or 20 percent from the amount you typically spend. Divert this money to your savings and you will be surprised how quickly your balance grows.

Coming from the other direction, increase the amount you contribute to your 401(k) and find some spending categories where you can reduce spending to cover this additional contribution amount. It is never too early or too late to invest for retirement. If you don’t have a retirement plan at work, consider contributing to an IRA, Roth IRA or IRA-SEP.

Ditch the Debt

Try to wipe clean your credit slate. Add up how much you owe on each of your credit cards. Then create a plan for paying off your debt, starting with the credit card with the highest interest rate. Additionally, call each of your credit card issuers and try to negotiate a lower rate. Going forward, resolve to make all purchases with cash or debit card to ensure that you spend only the amount you have.

One creative tip is to place your credit card in a metal bowl. Fill the bowl with water and pop the bowl in the freezer. When you are tempted to use your credit card, you have to thaw the ice. Resist the temptation to use a hair dryer, microwave or boiling water to speed up the thawing process. Hopefully, by the time the ice has thawed you will have changed your mind about spending.

Work with a CPA

A CPA can help you make tax planning a year-round activity. While some tax-saving activities can be executed at year-end, others require time and planning. Examples include offsetting gains with losses, shifting income, restructuring your debt to take advantage of tax-favored borrowing, and maximizing your itemized deductions. Find out early in the year where you can get the most out of this goal.

A CPA can also help you create a financial plan. A comprehensive financial plan is a key tool for managing your finances. A written plan motivates you to achieve your financial goals, provides direction, and offers benchmarks for measuring your progress. Your CPA can help you establish or update your financial plan. 894