As we head into the holiday season—and the extra expenses that it brings—money may be top of mind. And with the end of the year in sight, it's the perfect time to look back on the passing year to see what progress you've made on your financial goals. Are you on track with the targets you set for short- and long-term savings or reducing debt? Or did you fall short of your financial goals—perhaps forgetting your vow last year to plan ahead for seasonal splurges?
Even if you've been working hard to meet your money milestones, it's possible that simple mistakes may be derailing your efforts—or discouraging you from shooting even higher with your financial goals, such as padding out an emergency fund or increasing the amount you contribute monthly into a retirement savings account. Here are five common mistakes that may be keeping you from maximizing your financial goals.
#1. No budget
A budget gives you a road map to reach your financial goals, as it allows you to spend (and save) according to your priorities. Without a budget that shows how much money is coming in and where it's going, you won't have enough information to gauge whether your goals are realistic, or if you might be able to attain them even sooner. For this reason, creating a budget (if you don't have one already) should be at the top of your list of financial objectives.
There are many ways to create a budget, and you can use apps or other budgeting tools to help you. Even better, it's a great short-term goal that you can accomplish quickly, which will give you a sense of achievement and momentum that will assist you with your other goals.
#2. No "SMART" financial goals
You may have seen the SMART acronym before when it comes to goal setting in other personal or business contexts. That's because it's considered to be the best way to outline a goal and keep yourself accountable. SMART stands for:
- Specific
- Measurable
- Attainable
- Relevant
- Time-bound
While a financial goal such as “saving up for holiday spending" is admirable, it lacks the SMART elements that will help you achieve it. Instead, your SMART goal could be: “Save an extra $400 for holiday expenses next year, by opening a separate savings account and allocating $50 in my budget to be transferred each month from March to October."
This simple change in approach tells you what you need to do, when you need to do it and how you'll get it done. Bonus points if you break your SMART goal down into smaller deadlines and put them in your calendar. For example, you might set a January deadline for opening a new savings account, a February deadline for reviewing your budget and a March deadline for setting up automatic transfers.
#3. Forgetting that 'little things' add up to big bucks
Eating out for lunch instead of brown bagging it to work isn't a huge extravagance, but the small difference in price between takeout or a restaurant meal and bringing your own lunch five days a week could save you about $2,250 a year, by some estimates.1
Those savings could go a long way to helping you meet your short-term goals, such as saving for a vacation, or longer-term goals like becoming debt-free or buying a home—especially if you leverage the magic of compound interest.
So, be sure to pay attention to even the inconsequential expenses that eat up your cash. They may not seem like much in isolation but these expenses can have a huge impact if you add them up and redirect those funds to your preferred goal.
#4. Picking the wrong savings account
Too many people think they can achieve all their financial goals within one bank account, or else end up choosing the wrong type of savings account for their needs.
A money market account, for example, can be a good option for day-to-day banking since it allows for a limited number of transactions and pays more interest than a checking account, but it won't help you maximize your long-term savings.
For retirement or other long-term financial goals, a CD account can be ideal since it generally pays more interest than other types of savings accounts. But it's not usually the right choice for short-term goals because you can't withdraw the money until the maturity date.
To make the most of your short-term savings—money that will be spent in the near future or without much notice, such as an emergency fund—look for an account that offers access to the funds at any time without penalty and good interest rates, such as a high yield savings account.
#5. Not planning for unexpected emergencies
Speaking of emergency funds, not having one is another reason why people fall short of their financial goals. Without an emergency fund, all it takes is a sudden major car or home repair, job loss, illness or other unexpected expense to eat up the savings that you had intended to put toward other objectives, or worse, put you deeper in debt.
By keeping a cushion of three to six months of income in an emergency fund, such unforeseen circumstances won't throw you off track. If that seems like too steep of a goal for right now, set aside what you can each month until you have one month's worth of income and build up from there.
Bottom line: Keep working toward your financial goals!
Don't despair if you haven't come as far as you'd like with your financial goals this year. Take a look at the behaviors above to see if there are simple mistakes you may be making that can be easily corrected. Remember: there are always ways to improve your finances, and there's no time like the present to get busy making positive changes. Riverstones Vista Capital has many products and services to help you save and build your financial future, and you can get more helpful advice from our Money Matters Blog.
Tamar Satov is a freelance journalist based in Toronto, Canada. Her work has appeared in the Globe and Mail, Today's Parent, BNN Bloomberg, MoneySense, Canadian Living and others.
Sources
1. “The Economics Of Buying Your Lunch Vs. Making Your Lunch," Whole Intent blog, Oct. 8, 2018. https://www.wholeintent.com/blog/economics-buying-lunch-vs-making-lunch