Happy New Year everyone, may it bring you happiness and freedom.
Here we are again another New Year, time for new year resolutions and goal settings.
This is a great time to review your personal finances of 2020. If you have been tracking your expenses as per our 10 principles of financial independence, you can now analyse your spending habits. See which categories are costing the most and maybe make it a goal to decrease those categories in 2021, even just be 1%
My philosophical goals
I’ve said it many times, financial independence is a slow arduous journey. My philosophy has always been; slow and steady wins the race. Even though I was late getting into the financial independence movement, I was over 50 years of age before I discovered it, I still believe that it is better to consistently save, invest the savings and don’t lose your money. The important thing here is, don’t lose your money, which means conservative investing. I still have some gamble money that I use for Bitcoin, Lottery, and sometimes individual stocks but the majority of my money goes into either my pension of ETFs. So my goal this year is to increase my pension AVC to 25% and increase the deposits into my investments by a minimum of 5%.
How to set SMART goals
It’s easy to set a general goal like “I’ll start investing this year” but let’s face it, that is probably never going to happen. That goal is not something that would motivate you. You may have heard of SMART goals especially if you work in the corporate world. Why not apply those SMART goals to your own lifestyle. SMART is an acronym for:
Specific. The goal needs to pertain to one particular topic. For example, savings, or investing, or decreasing an expense.
Measurable. The goal needs to state an exact amount or percentage
Attainable. It should be your actions that reach this goal. You should not be relying on someone else.
Reachable or Realistic. The goal should be realistic. A goal of saving 20,000 EUR per year would be unrealistic if you earn 30,000 per year and your expenses are 25,000 per year.
Timely. A goal without a time limit to reach it, is just a wish. When do you want to reach the goal?
Let’s take the previous example “I’ll start investing this year” and turn it into a SMART goal.
Specific. I’ll start investing this year.
Measurable. I will invest €600 this year. how much will you be investing?
Attainable. Can you reach this goal using your own actions? Yes, but I may have to reduce my savings or decrease some expenses
Reachable. Is this goal realistic? Can you save €50 per month for the next 12 months.
Timely. When will the goal begin or how much will you have invested by a specific time period?
The final SMART goal: I will invest €50 per month for the next 12 months, starting on Jan 30th. Try applying SMART to your personal goals now.
If you set some goals last year and you did not follow through on them or you dropped them after a while, don’t worry about it. Just look back and see if you can figure our why that happened. Then see if you can prevent that same issue from happening this year.
If we look again at the 10 principles of financial independence, #3 is Get rid of unnecessary debt. This would be a great goal to aim for this year.
Get rid of Credit Card debt
If you have any major credit card debt, I would recommend tackling this first. Credit card interest rates are extremely high, which makes it difficult to pay off the balance. Tip: An Post is currently offering 0% interest on credit card balance transfers for 12 months. You could apply for this transfer the balance of your highest interest credit card and then aggressively pay off the An Post card.