Here is how i met all of my financial goals last year
Every year, roughly 50% of people make new year resolutions, some particularly tied to financial goals. And roughly 90% of those people fail to meet those resolutions.
With the current UK population of 67 million people, that’s just over 67×50%x10% = 3 million people who ends up making it.
I always tell myself; this is the year. And I am ready for a change. Mostly I don’t make it.
But last year, I did something pretty exciting. I managed to tick off all of my financial resolutions for 2021. And I plan to do the same this year too.
The trick?
- Keep it simple, don’t overwhelm your self
- Take it slow but make it specific
- Give yourself a reward and remember why you are doing it
Basically, make them: SMART.
- Specific
- Measurable
- Achievable
- Realistic
- Time bound
So here are my financial goals that I successfully reached last year and hoping to achieve again this year.
1. Maximize ISA Allowance
In the UK, we have a fantastic scheme to save & invest our money without paying any taxes on them. And that scheme is called – Individual Savings Account (ISA). It’s a type of account you open where every financial year (which starts 6th April) the government gives you a £20K allowance to put into this account without ever having to pay any taxes on their profit or income. Unfortunately, only 1 in 4 adults in the UK actually subscribed to this account last year.
I opened my first ISA account right after learning about it at my first job in the City. That was in my early 20s. So, yes I never knew about them until I actually started to work in the Investment industry myself. But since then I have caught up, and I am so far on track to maximize the 2£0K allowance by March this year.
It’s my personal goal and hasn’t always been the maximum £20K. You can make it however much you feel comfortable with. Let’s do a quick example showing exactly how to make this financial goal a SMART one. Here is Little Miss Subtle.
S: Miss Subtle wants to have £5K Invested in Stocks & Shares ISA for 2022 financial year
M: This measures to £417 of investment per month for 12 months
A: It is achievable because it is 20% of her monthly net pay
R: It is realistic because Miss Subtle earns a consistent amount every month and that additional money is not needed for anything else.
T: £417 is automatically taken in Direct Debit on 7th of each month, so it is also time specific.
2. Pay full credit card balance each month
There were times when I got super angry at myself when it came to credit card bills. Because I had unnecessarily paid extra fees for only making minimum payments when I could’ve paid them in full.
I have always been anti-credit card person. I was determined to only spend from what I have. But if used right, credit cards can be quite useful to have for big buys and online shopping. For example, some credit cards give you points for using them which you can convert to monetary value and it also gives you better fraud protection too.
I have now automated the way my credit card balance is taken care of. Every month, I have a direct debit which takes the full balance due on the credit card rather than paying the minimum. It definitely doesn’t feel great when a big amount of money vanishes from my personal account to pay the bills, but it does save money from paying unnecessary interest charges. And with interest rate on the rise, it definitely makes sense to prevent the banks making more profit from our negligence.
Again, this can be a smart objective too! But if you however find that you’re relying too much on credits then instead of taking on this resolution which may not be realistic – perhaps looking at reducing reliance on credit card be a more suitable one.
3. Overpay mortgage
It’s a controversial one, some people opt to overpay on their monthly mortgage while others prefer to invest those money instead. One approach is about growing your assets and the other about reducing liabilities.
I became a homeowner in 2018, there’s a video (below) talking about how I went about doing that if that interests you at all. It basically means I am still at the earlier years of my mortgage term. And mathematically this implies that most of my monthly mortgage contribution is going towards paying interest cost to the bank rather than reducing the actual repayments from the money I borrowed. This means its best time for me to repay as much as possible in these early days, so that I ultimately end up paying much less overall. I’ll soon share the thinking and maths behind that process in one of my next blogs. So do consider subscribing if you’d like to read more on these contents about personal finance.
This financial goal wouldn’t be relevant if you are renting or are near your mortgage terms. But if you are a relatively new homeowner this can be a pretty SMART objective for this year given the benign stock market outlook & rising interest rates.
4. Charity
Perhaps this is not a popular one, because most of us are either trying to save more money or spend less. But I can truly vouch that by giving away money & not expecting anything in return, can make a big difference in your life. We all care about a cause or two, and to know that our money is making a difference to someone, something or the planet is indescribable. You can experience pleasure by giving, which will make you feel good and happy to achieve other important goals in life. It can also be a great discipline too. And the best part is, this is all very personal. There is no right or wrong amount on this.
As part of my faith, I happily give away 2.5% of my overall wealth to the charity of my choice every year – and have been doing so since I started earning. And I can honestly say, the more I give – somehow – I get more back. It sounds mathematically strange, but it’s true. Giving in charity has definitely been a net positive thing for me. If you are up for it, have a go doing it yourself this year.
5. Track monthly expenses and investments
This is one of the resolutions where I struggle the most. That’s because I am a free-spirited person, and not the most frugal when it comes to spending money on experiences and gifts. But to help me get there, I did start my own budgeting spreadsheet last year, where month-end I recorded all my income, expenses, and investments all in one big excel. And I can finally say that I know exactly how much I made in 2021, how much I spent and how much I invested and in exactly what.
What didn’t happen, and this is when my resolution may sound a little shady, is that during some months I did overspend. Getting a new car last summer did push the monthly expenses up a notch! However, because of the way I save and invest, those months did not impact my overall savings goal.
And that’s because I do these two things differently:
- I put away my savings first and then spend. So, I don’t want to save whatever is left after spending
- I have set all my monthly expenses on the first 5 days of the month so that all the important direct debit such as mortgages are taken care of right when my salary hits the bank account. In this way, by the middle of the month my actual bank balance looks rather dreadful, which means I don’t have the heart to spend on big items even if I wanted to.
I would like to clarify that just because I overspent on some months doesn’t mean I did not meet my financial goal. And that is because my resolution was not to be under budget every single month but to track all my money every month. That I did.
You see baby steps. I know myself and didn’t want to overwhelm.
The summary
The key to really making a financial goal work is this:
- Track progress but don’t make it too hard that it puts you off. You can use a simple spreadsheet or can rely on your bank’s app or other specific budgeting apps for budget specific financial goals.
- Find a method that works for you & remind yourself ‘WHY’ you are doing this. Finding a bigger purpose such as an early Financial Independence may just be it!
- Have fun and reward yourself. Good luck!