Resolutions for the new year can be easy to make, but also easy to break.
This also applies when it comes to setting financial goals – and there are certain mistakes that could make it more likely for money resolutions to be derailed.
Karen Barrett, founder and CEO of Unbiased.co.uk, a platform for connecting people with independent financial advisers, says there are some common traps people risk falling into when setting financial goals for the year ahead.
“They’re easily fallen into, and often with the best of intentions, but you can avoid these when you have the right knowledge on your side,” she adds.
Here are some traps to watch out for:
1. Overlooking your current financial position
Ms Barrett suggests starting by going through your bank statements.
“It’s easy to get carried away with your end goals, but taking control of your finances should always start with finding out what you’re actually spending, and then setting yourself a budget,” she says. “The head-in-the-sand approach, of not looking at this, is to be avoided at all costs.”
2. Not tackling debts
“After understanding your spending habits, you then need to get a handle on any money you owe, and tackle this before moving onto any lofty goals or ambitions,” says Ms Barrett. “This is especially true at this time of year.”
3. Being too vague
“One of the main reasons why new year’s resolutions fail is because they’re unrealistic or unclear,” says Ms Barrett. She suggests setting mini-goals that are realistic and achievable.
“Small, specific and achievable goals are less daunting than larger ones, making it less likely that you’ll abandon them. For example, if you’re aiming to clear your debt, be honest about how much you can really afford to pay back each month, and set a reasonable time frame.”
4. Relying only on word-of-mouth advice
While friends and family may have some useful money-related suggestions, it’s important to remember everyone’s circumstances are different and what’s worked for one person may not necessarily be right for someone else.
Some people may benefit from financial advice from a suitably qualified professional, who can look at someone’s circumstances and recommend steps to achieve their money goals. Ms Barrett says: “For advice to be as effective as possible, it needs to be tailored to your specific needs and goals.”
5. Putting all your eggs in one basket
If you’re considering investing, Ms Barrett suggests keeping a diverse portfolio.
“Many are turning to investing for the first time to help hit their financial goals, but over-relying on one type of investment, sector or country can expose you to unnecessary risk,” she says.
“Luckily, people are waking up to how important it is to seek proper financial advice before investing.”
6. Forgetting to shop around
Ms Barrett says it’s important to shop around for a range of financial products, whether it’s before opening a savings account, taking out a mortgage, or looking for an annuity that will provide an income in retirement.
This “includes making sure you understand any hidden fees before opening a financial product or for example, signing up to an investment platform”, she adds.
7. Not planning for the unexpected
Ms Barrett says: “Everyone can relate to the notion that life has a habit of throwing curveballs. Above all else, make sure you’re working on building up a ‘rainy day’ fund on top of your wider savings goals. It’s generally recommended that you build an emergency savings pot to cover monthly expenses for three to six months.”
8. Giving up if you hit a setback
Finally, don’t panic if you slip up. Ms Barrett suggests: “Set a monthly reminder to sit down and check how you’re getting on. Doing this should keep you motivated, and can also help you see if you need to tweak your plan.
“If things aren’t quite going to plan, don’t feel too down or give up. Try to get back on track and recognise that not getting something quite right is an essential step on the way to doing it really well.”
Do you follow any of these tips? Have they helped your financial goals? Why not share your experience in the comments section below?
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