I’ve become a big fan of goal-setting in recent years. I started out with financial goals back in 2012, and in recent years have added other areas; last year I had goals in four other categories: Professional, Health/Wellness, Family, and Friends. I love this process: it allows me to sit down and reflect on what I’m satisfied with in my life, and what I’d like to improve. And setting my goals gets me excited to think about what I’m going to do in the upcoming year, and how my life will be better for it.
The value in this process for me personally is that it requires me to take a step back and look at where I am today, and where I want to be, and forces me to figure out the steps I need to take to make progress towards my long-term goals.
In financial terms, a snapshot of where you are today is called a net worth statement. If you were a business, you’d refer to it as a balance sheet. “Net worth” might sound like financial jargon, but in the simplest terms, it’s what you would end up with if you sold everything you owned and paid off all of your debts. To figure it out, you add up the value of everything you own, and subtract any debts; the excess is your net worth.
Most financial goals you set will likely have the effect of improving your net worth, as they will either reduce your liabilities, such as paying down credit card debt, or they will increase your assets, such as saving more towards retirement. However, you can also set other goals, such as improving your credit score, or cutting back on mindless spending, that will also help your net worth in the long run.
In my goal-setting process, I start by looking at my net worth, and the details of what goes into it. I think about how each item is going: if it’s a current retirement account, I evaluate how much we’re adding to it every month and whether that sounds like enough. I look at how much cash we have in the bank and whether that feels like the right amount to cover any large or unexpected expenses for the year, and whether we’re adding to that account on a regular basis. Then I usually list four to five financial priorities, and take steps to automate the process. That may mean setting up an automatic deposit into my Roth IRA or my kids’ college savings accounts. For someone else, it could mean transferring a credit card debt onto a 0% interest credit card and setting up automatic monthly payments. And for someone who’s looking to curb their monthly spending, it might be scheduling a time every week to withdraw cash for their “fun” spending instead of swiping their debit or credit card when they go out.
Just the process of sitting down for an hour, taking an honest look at your finances, and identifying places where you can take baby steps, will help to bring your finances to the forefront of your mind. The little changes you make every year really add up over time. Just make sure you keep records of the net worth calculation you do today, so that you can see the progress that you’ve made over the next 2 years, 5 years, or 10 years. I have a net worth template in Excel that you can use to get started; contact me if you’d like me to e-mail you a copy.