New year is the time most people are inspired to set new goals and habits. Some people want to improved relationship with their family, healthy lifestyle or better financial conditions. However, according to research conducted by the University of Scranton in the United States, only 8% of people achieve their new year goals. The other 92% usually fails.
If you want to be part of the 8% that usually achieves their new year resolutions, you have to plan and execute accordingly. Last year December I read some sites including Bill Gate Notes, and I learnt that successful people always prepare for success. Therefore, if you want to be successful, you have to plan your year to see the results you desire.
In this article, I will share with you the four principles that will help you achieve your new year personal financial goals. The four steps will help you to improve your financial conditions beyond this year. Note that what I am about to share with you are personal finance principles and not miracles. Therefore, they will only work for individuals who religiously followed the principles.
What are these principles?
They are the principles of Where, What, How and Act (2WHA). In other words, you need to know where you are, what you want, how you will get it and act on the “how”.
Step 1. Self-assessment – Where are you?
Do you know your financial net worth as of the end of last year? Do you know the primary sources of your last year income and how you spent these incomes?
If you can answer these two questions, then move to the next step.
Nonetheless, experts have discovered that we cannot improve upon what we do not measure. Therefore, your first step towards achieving your new year financial goals is to assess your current financial condition. You should evaluate your financial net worth by comparing your financial assets such as savings and investments to the liabilities like loans. Self-assessment also requires you to look at your sources of income and how you spend your money.
These two assessment tools will help you learn about your past lifestyle and wealth creation efforts. The outcome of the assessments will also help you to determine what should be the essential priorities in your financial life. For example, a person with expensive debts should consider paying off before investing in low return investments or someone with very poor savings should consider starting now as you never know when an emergency will knock.
Step 2. Set your financial goals
The second step is to state what you want. At this stage, you need to define the specific new year financial goals you aim to achieve during the year or beyond.
Your goals should be specific and precise. Instead of writing, “I want to save more money “, set a clear goal like “I will save D20,000 by 31 Dec XXXX”.
Most people also fail at the step as they set too many goals. The consensus among expert is that for change to work, one must approach it in small numbers. Therefore, it is better to focus on two key goals than setting ten financial goals that will not be achieved during the period.
Goals can even be more powerful and motivational if they are related to your personal desires and values. Imagine if your reason to save D20,000 in this year is to start your MBA course or implement one small business idea you had.
Do you feel like giving up? First, think about the reason why you started to pursue that goal.
Step 3. Prepare your action plan
Setting your goals is never enough if there is no deliberate action plan to achieve such goals. A goal without an action plan is a dream.
Your action plan should outline the list of all the major tasks and activities that will help you to achieve your goals. If you want to pay off some debts, then clearly state how you will do it. One of the best tools is the personal financial budget.
Nonetheless, for most people, our action plans will fall into four categories:
- Do more of something e.g. save part of your earnings
- Do less of something, e.g. impulsive buying
- Start something new, e.g. investing excess cash
- Stop something bad, e.g. taking consumer loans
Your action plan should be reasonable and be ready to change.
“To achieve something you have never achieved before, you will have to do something you have never done before “ – (Brian Tracy)
Step 4. Execute and monitor
You can set well-defined goals and action plan; however, nothing will ever work if you do not take action. You need to act on your action plans. You have to be disciplined and ignore distractions. In life, we can only achieve our goals through sacrifices.
The most common reason people fail in life is not lack of dreams or goals but failure to take action. It is similar differences between successful and less successful people.
Therefore, if you want to achieve better financial freedom in the New Year and beyond, you must start to act now. It’s never too late to do something. You simply have to assess where you are, list what you want, set out the tasks that will get you there and start to act.