Step 1: Review your finances.
Collect your bank statements and other documents that detail how you spent money last year. Identify recent financial successes and challenges by asking a few key questions:- Where did most of my money go last year? (e.g., essential expenses, discretionary spending, savings, debt repayment)
- How did I handle unexpected expenses? (e.g., emergency fund, credit card, loans)
- Did I stick to my monthly budget? If not, why? (e.g., overspending, lack of planning, unexpected costs)
- What financial goals did I achieve this year? (e.g., saving a specific amount, paying off debt, increasing income)
- What were my biggest financial challenges? (e.g., overspending, insufficient savings, high-interest debt)
- Which habits kept me from reaching my financial goals? (e.g., impulse spending, lack of tracking, inconsistent savings)
- What long-term financial goals are most important to me? (e.g., buying a home, early retirement)
Step 2: Set realistic goals.
Before naming your goals, commit to a goal-setting framework, like SMART, to increase the likelihood of success. This proven model helps you set clear and actionable goals by making them Specific, Measurable, Achievable, Relevant, and Time-bound. Review the chart below along with the examples to learn how to apply each component when considering your financial targets.| Specific | Measurable | Achievable | Relevant | Time-bound |
|---|---|---|---|---|
| Clearly define your goal | Track your progress with milestones | Make sure the goal is realistic based on your income and expenses | Align your goal with your financial priorities and values | Set a deadline to stay focused and motivated |
Build an emergency fund
- Specific: Save $1,200 for an emergency fund to cover unexpected costs, such as veterinary bills or home repairs.
- Measurable: Save $100 each month by designating a portion of your paycheck for direct deposit into a high-yield savings account.
- Achievable: Based on current income and expenses, $100 a month is a realistic amount to save.
- Relevant: An emergency fund strengthens long-term financial security and reduces reliance on credit cards or loans for surprise expenses.
- Time-bound: Reach the $1,200 goal within 12 months.
Pay down high-interest debt
- Specific: Pay off a $5,000 credit card balance with a 20% interest rate.
- Measurable: Pay an extra $200 each month toward the balance, in addition to the minimum payment, to track progress and accelerate debt reduction.
- Achievable: Based on your current budget, assigning $200 extra toward the debt is realistic without compromising essential expenses.
- Relevant: Paying off high-interest debt frees up money for savings and other priorities, improving your financial health.
- Time-bound: Eliminate the $5,000 balance within 30 months.
Step 3: Track your progress.
Check your spending and savings each month and make adjustments as needed. If you’re spending too much, cut non-essential expenses. Celebrate progress, such as paying off 25% of your debt. Be open to revising your plan to keep it realistic and achievable.Tools to help you succeed
- Budgeting apps. Use them to track where every dollar goes and alert you to overspending.
- Financial calculators. Use savings and debt calculators to see how making different decisions affects how long it takes to reach your goals.
- Educational resources. Access free financial articles, financial coaching, and financial wellness tools to improve financial literacy.
