Whether you want to buy a house, pay down debt, or save enough money to live comfortably in retirement, it’s possible to reach your financial goals. The trick is to find what’s holding you back from taking action on those goals.
Financial self-sabotage can manifest in many ways, from resisting a budget to neglecting your savings account. When you’re planning your financial future, it’s important to understand the most common forms of self-sabotage and how to avoid them. Here are several tips to get you started.
1. Develop a Purposeful Budget
A budget gives you a picture of your financial situation by showing how much you earn each month and how you spend or save your money. It also helps you with planning. Without a budget, there’s no easy way to see how your spending relates to your income. You might end up spending way more than you bring in each month, which is a fast way to accrue debt.
If you aren’t currently following a budget, you’re not alone. Many people self-sabotage by postponing this important responsibility. That said, it’s never too late to formulate a budget and take control of your finances.
Start by tracking your income and expenses. Identify essentials like rent or mortgage, and non-essentials like dining out. Be realistic and flexible - cutting out everything might lead to frustration, so make room for small treats. Review your budget regularly to ensure that it aligns with your goals.
2. Get SMART Financial Goals
Another common way that people self-sabotage is by failing to set financial goals. It can be difficult to reach important milestones if you don’t have a plan for getting there. Whether you’re set on homeownership or supporting your kids through college, financial goals serve as little checkpoints along the way.
If you don’t have any financial goals, it’s time to set some. The goals can be big or small. What matters most is that they’re something you can make visible progress toward and track. Ideally, your financial goals will be SMART ones:
- Specific
- Measurable
- Achievable
- Relevant
- Time-bound
Here’s an example of what a SMART financial goal might look like:
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Goal: Save $25,000 over the next 10 years for a 10% down payment on a $250,000 home.
- Specific: You know exactly what you’re working toward ($25,000 down payment) and why you’re doing it (afford a down payment on a home).
- Measurable: You want to achieve the goal within 10 years. Since you know the amount to save ($25,000), you can easily calculate how much to set aside every month to reach the goal on time ($416).
- Achievable: Based on your income and current financial obligations, saving $416 per month might be something you can easily do.
- Relevant: If you want to become a homeowner, saving for a down payment is part of the process.
- Time-bound: You’ve given yourself a timeframe for saving (10 years).
If you aren’t sure what type of goal to set, here are a few ideas:
- Establish an emergency fund: An emergency fund provides protection if you lose a source of income or encounter a surprise expense.
- Save for retirement: Depending on your age, saving for retirement can be a long-term goal. To start saving, calculate how much you might need in retirement based on your income and lifestyle preferences. Then, figure out how many years you have until you retire. Using those numbers, you can calculate how much you need to set aside to stay on track with the goal.
- Save for your child’s college education: Similar to saving for retirement, saving for a child’s college tuition can be a long-term goal.
- Cut your monthly spending by a certain amount: Let’s say you spend $500 per month on miscellaneous stuff, such as meals out, coffee, and non-essential household items. You’d like to spend less on things you don’t actually need, so you decide to cut this spending by 20% ($100). To stay on track, record each non-essential purchase you make.
- Pay off a credit card: If you have credit card debt, one of your goals might be to pay it off. How you go about reaching this goal depends on the number of cards you have and the amount you owe. You might focus on paying off the largest debt first or the card with the highest interest rate. Regardless, choose a target “debt-free” day and determine how much you should pay toward your debt to allow you to reach that goal.
3. Don’t Compare Yourself to Others
It’s easy to feel like you need to keep up with others. You thought you were happy with your sedan, but your best friend recently bought a snazzy sports car, and suddenly, you find yourself wanting one, too. Or, on a recent shopping trip with friends, you only planned on buying a new pair of shoes but found yourself leaving the store with new jeans, shirts, and accessories as well.
The trouble with this mentality is that it can really throw your finances into a loop. You may not have the budget for an expensive sports car, but you find yourself taking on the high monthly payments anyway. Or you might make so many purchases that you come close to the limit on your credit card. The need to show off your supposed wealth can keep you from actually building it.
Focus on your own financial goals rather than material possessions. Remember, what you see on the surface may not reflect others’ actual financial situations. Reflect on your achievements and avoid overspending to impress others.
4. Start Setting Aside Money
It’s a good idea to have some money tucked aside for a rainy day. After all, unexpected expenses are a part of life. Having a solid emergency fund will give you some financial protection if your car breaks down, your furnace stops working, or you lose your job. Aim to set aside enough to cover a few months of expenses, starting with a small goal like $1,000 and gradually increase it over time.
5. Automate Your Savings
Automating your savings can help you make sure that you’re staying on track. Set up automatic transfers to your savings account each payday so you’re consistently putting money aside. This “pay yourself first” approach helps you prioritize saving before spending.
PSECU is Here to Help You Reach Your Financial Goals
If you’re feeling stuck and overwhelmed by your financial situation, remember that you don’t have to navigate it on your own. Our Resource Center has financial tips and advice to help you make a budget, create a savings plan, and get on track with your money.
