NerdWallet's Smart Money Podcast - How You Can Achieve Money Goals in 2021

Episode Date: January 4, 2021

What do you want to accomplish in 2021? This month, our #NewMoneyGoals bootcamp will set you up for success. To start, know how to craft — and actually achieve — your money goals. That means making them SMART. Sean and Liz talk with money Nerd Kim Palmer about how you can get what you want from your money in 2021. Turn to the Nerds for help with your money questions! Email [e-mail] or call or text the NerdHotline at 901-730-6373. And visit www.nerdwallet.com/podcast for more info

Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Sean Piles. And I'm Liz Weston. To have your money questions answered on a future episode, please call or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. Or email us at podcast at nerdwallet.com. And hit that subscribe button to get new episodes delivered to your devices every Monday. And if you like what you hear, leave us a review. This month, we're doing something a little different. We put together a money bootcamp

for all of you under the banner of hashtag new money goals. Our mission is to set you up for success in the new year so you can accomplish whatever goals you have for your money in 2021. Each week in January, we're doing a deep dive into a different money goal. And while we're at it, we'd love to hear what your money goals are for this year. So please share them with us through the nerd hotline or by emailing us. And the hashtag new money goal we're focusing on this week is kind of a goals 101. We're going to talk about how to craft the right money goals for yourself this year and how to actually accomplish

it. Yep. And joining us in this conversation is fellow nerd Kim Palmer. So let's get to it. Hey, Kim, welcome back to the show. Thank you so much for having me. I'm having a little bit of deja vu because we had this conversation last year. And wow, how much has happened in the meantime. A lot of people's goals were upended throughout 2020. And I think now is a good time to think about how people can plan for their finances in 2021 and actually take steps to accomplish whatever they want to achieve from their money this year. Definitely. I mean, it's so hard to imagine thinking back a a year ago, when we talked about this, we just couldn't have imagined or predicted what this year would take us. And I think one

thing we found recently at NerdWallet when we asked, but we actually did a survey asking people how this year, how the pandemic has affected their financial goals. And the biggest takeaway is that across the board, it had a huge impact on people's goals. And it's hard to even talk about goals without thinking about how the pandemic has really impacted everything about our money. So Kim, what did the survey tell us about how the pandemic affected people's goals? Well, what's interesting is that it definitely didn't have a uniform impact. So people were affected different ways. But 29% of people who had 2020 financial goals said that the pandemic actually forced them to put those goals on hold. And so that really shows the negative impact the pandemic had on a lot of people's finances. but to look at the positive side, there was a positive takeaway too in that for some people, they picked up some good habits too during the pandemic. And so for people who said that they do enjoy some of their new habits,

like spending less on wants, cutting back on travel, thinking more about their budget, among those people, a vast majority of them said they actually want to continue those good habits into next year. So it's not all negative. That's really nice to hear that people are getting something positive out of 2020.

It's easy to think really negatively about 2020 and how that year went. But I think the positive takeaway is that for a lot of people, the pandemic also caused them to think about how they're spending, rethink savings goals, and maybe just think overall about budgeting the differences between needs and wants. What we can live without, a lot of us learned that. And some of those habits, we actually want to continue into 2021. I am absolutely in that camp. And later on, I know that I'm going to ask you guys about your money goals, but not to spoil anything too severely. But that's pretty much what I want to focus on.

I want to keep being frugal and saving more because we've seen how important that is. To dive into how people can begin to approach the way to form their money goals, I spoke with a really interesting financial advisor who had some great advice. He said that to start, you should take an inventory of where you are and more importantly, who you are. And I thought that was really interesting as a way to divide how to start thinking about where you want to be in the new year. So the first part of this, of where you are financially, really meant digging into things like your income, your monthly expenses, your emergency fund, and understanding where you are right now can give you an idea of where you could be in a year's time. And that's pretty nuts and bolts financial management. But where it gets a

little bit more challenging and introspective is thinking about who you are. And this means thinking about your personal priorities and values and maybe even how they've shifted because of the pandemic. And when you think about what you want out of life, out of your relationships, out of the next year, I think that that can begin to give you an idea of what you want from your finances too. Can you give us an example, Sean? So one idea is, okay, maybe you want to get back

to a baseline of where you were in early 2020 after a year of financial challenges. Or maybe you just want to use the money that you've saved over the past year to put a down payment on a house. And while those are really great goals, I think that you should think about the why behind that too. So for the first goal, getting back to a baseline of where you were in early 2020, that might just mean from a standpoint of your hierarchy of needs, having a solid foundation of stable finances after all of the tumult that we saw last year. But for something that's a little bit more ambitious

and forward-looking, over the long term, like buying a house, you think about what that new house would give you. Is it just that you want a new place for your young family? Is it that you want to start building equity? Do you just want to have a fun new place to decorate? What is really driving you? And once you think about that, I think that that will give you more motivation to stick to your goal over the long run. One of the things that people can do is to take a look at how they spent their money last year. And you can use a personal finance app like NerdWallets or Mint or Personal capital to kind of take a look at with the pandemic what you were spending the most money on and see if that really resonates with your values

for example if you want to spend more time with family if you really value family is that where your money is going or is it going to stuff that you don't really care about so that's one way to kind of winnow down what's important to you. My first thought is spending more time with my family, something I haven't been able to do a lot this in 2020, because they all live so far apart, we haven't been able to get together. So I'm looking forward to hopefully having more of that in 2021. But, you know, going back to examining your spending, I think that's such a smart idea for people, because as you said, maybe some folks spending wasn't actually in line with their values. And from a personal philosophical standpoint, that can help you understand where your values actually lie. Because we know that budgets aren't just

financial documents, they're documents that reflect your values and your priorities. And so if you see that you've been spending too much on frivolous things online, or maybe getting extra takeout, something that I was doing a lot of over the summer, I know that I ended up curbing. And so by examining your finances, you can see how you might be able to shift what you're spending your money on to actually reflect what you want to prioritize. I love that. Some of the research I've seen on financial planning shows that we actually tend not to choose the right money goals goals that when we do our goal setting, we tend to use the things that are sort of top of mind at the moment, but that might not really reflect what we really want long term.

So I'm interested in hearing what other people have chosen as their financial goals for 2021. And I think, Kim, we did a survey on this too? We did. We did. We asked people what they're thinking for their own goals looking ahead to 2021 and what their plans are for this year. Some of the most common or most popular goals are around savings. 50% of people actually told us they want to start or increase their savings. And then 33%, so one third of people told us that they want to pay off or consolidate debt. Some other ones that people

mentioned are improving their credit score, establishing a budget, a beginning to invest. So a lot of good ideas came out of this survey. Yeah. Once you think about where your money is now, where your personal priorities are now, and where you want them to be in the future, I think that it's really important to give some structure to the goals. And one template that we've talked about before that is super helpful is using the SMART template for goal setting. And this is an acronym here, and we can talk through them. But basically, it means setting a specific, measurable, attainable, relevant, and time-bound goal. And there's a lot to unpack in each of these steps. And it doesn't happen overnight. I'm actually going to give myself

through January to work through this and make sure that my goals are totally structured and set up because it does take a little bit of doing. But this is the one time of year where you want to set some time aside to make sure that you have the groundwork laid to achieve your goals in the coming year. So let's talk through each of these steps. So for specific, it's really important to make sure that your goals are as specific as possible. And here's a quick example of that. So say you want to curb your spending, for example, something that I'm focused on, I think it's important to pin down how much people spend on unnecessary items a month, like an extra piece of clothing or a toy for your dog or something, and then set a specific dollar amount for such spending so that you can make sure that you're not going over that in the new year. Sean, how specific do you need to be? Do you set a number? Do you set a monthly number? Or what do you think is the best way to think about that? Well, I think that it's a little bit subjective. This is one area where the 50,

30, 20 budget can come in handy because with this format, half of your money is going towards needs like housing, medicine, things like that. 30% is going towards wants and 20% is going towards debt payments and savings. And so if you think about it, 30% of your income going towards wants, which could be maybe deemed unnecessary expenses, is actually a pretty generous portion. So I'm going to think about what that dollar amount is in my budget, actually go back through my spending over the past six months, find out how much I spent on a new toy for my dog or a nice dinner for my partner and I, things that are a little bit expensive, and make sure that I am not spending that much

and actually spending like maybe $100 less a month. And we can use the calculators that are on the NerdWallet website to help with some of this. I'm not very fond of doing extensive calculations. So I will definitely be using one of those calculators as I figure out this plan for myself. But moving on to the M, the measurable part of the smart structure for goal setting. It's really important to make your goals measurable and find a way to track your progress. Even something like a savings progress chart

that you color in as you fulfill your goal can help you see that you're making progress instead of just slogging along week by week, month after month, you see that you're actually getting closer every dollar you put into that savings account. I think that can be really helpful. And speaking of measurable, I like to check in with those budgeting apps I was talking about basically every week to make sure that I am achieving the goals that I have set for myself.

I'm a big fan of that as well, especially because with my very specified way of tracking my spending that I'm going to be taking on the new year, I'm planning on seeing if I've spent less in my wants category than I even have allocated for myself. I'm going to take that amount that I didn't spend and use that to top off my savings because I have a pretty ambitious goal this year. And that's just one way that I can meet that even faster. My husband and I have actually been trying to be really strict with our budget. And we basically do a version of that with a calculator, a budgeting calculator. And we just every quarter sit down and review it and see if we can cut anything else. And just measuring it in that way, I think, has been really helpful.

I think a lot of people with the pandemic, obviously, their spending changed. But I was surprised at how ours did and didn't change. Obviously, we didn't spend nearly as much on travel as we normally do. We actually spent more on food. And I was thinking since we weren't eating out as much on travel as we normally do. We actually spent more on food. And I was thinking since we weren't eating out as much, that wouldn't be the case. But apparently, I went a little overboard with my preparations. Well, we've all been cooking more, right? And we've been trying recipes.

We didn't have like half of the ingredients. So we've been going to specialty stores and getting all sorts of different kinds of spices and noodles. And that can add up, especially if you're cooking just for a specific recipe. So what we've been trying to do just in the past quarter or so is get more bulk items that we have a pantry of things to pull from and can whip something together without having to get really exotic things that we maybe will only use for one recipe and then never touch again. But that's, again, why it's so important to look at your actual spending and where the money is going, because it might not be going where you think it is.

All right. Well, moving on to the next letter in this SMART acronym here, it's A for attainable. Your goals need to be something that you can actually accomplish within a year. Sean, does it have to be a year? It doesn't. I like to have things specific within a year for the purposes of this conversation. But obviously, we have goals that are going to take place and be achieved over many, many years. Retirement is maybe the biggest one that I can think of right now. And similarly, saving for a down payment on a house is likely a multi-year goal for a

lot of people. You do have something you want to achieve over many years. Think about what you can do this year that will get yourself that much closer to achieving it on the timeline that you set for that goal. For me, I like thinking in terms of this year, but then also five years and 10 years. To me, it's just helpful to write it out. And like I said before, I do this in coordination with my husband just because our financial goals overlap so much and are very much related to each other. So we write down this year and that's what we're focusing on now. But then we do just think, well, if we want to be able to send our kids to college and

retire one day, what else do we need to be doing now to think further down the road? So I do like thinking a little bit further down the road, just as we are writing out our goals for this year. Yeah, you kind of visualize where you want to be, what you want your life to look like in the five years or 10 years or whatever, right? Absolutely. And I think that really ties in well with the next letter in this acronym, Relevant, which is really about choosing goals that are relevant and meaningful to your personal values. And this can help you stay focused when you do have a really long-term goal like that. And thinking of retiring early, make sure that you are upping those contributions so that you're on track to achieve that multi-year goal, because that's something that you're prioritizing. You want to have that extra time in retirement. And what you do today will make that feasible.

We went through this several times about do we wanna retire early? You know, a lot of people that is a goal, but they have to give up a lot to get there. And we came to the conclusion that we'd rather live our life a little more comfortably now and retire a little bit later. That's not gonna be everybody's situation. I'm in your camp, absolutely, Liz.

I mean, we know that there's no promise of tomorrow. So I've said it before, I'll say it again. I'm all your camp. Absolutely, Liz. I mean, we know that there's no promise of tomorrow. So I've said it before. I'll say it again. I'm all about planning for tomorrow, but living for today. And that means that I'm not going to be able to retire early, but I'm still in a position where I'm totally fine with my retirement savings so that eventually when I do retire, based on where I am right now, it should be okay. but I'm not planning on doing it by 40. I'll say that. Kim, I wanted to drill down a little bit on making goals together as a couple, because you are going to be hopefully on the same page about some things, but you're not going to be on the same page about other things. So how do you and your husband work through that?

I mean, that is so true because we have to make a lot of hard choices. So luckily, both my husband and me in general, we agree on a lot of things about this. But we basically we write down all of the things that we need or want to spend money on. And we just kind of debate them. And we do have different things. So for example, my husband would love to travel a lot more than I do. I'm much more of like a homebody and I'd be fine saving money on travel when we're allowed to travel. Whereas for him, he'd really like to kind of splurge more on that kind of thing. And so we go back and forth on that. We compromise even smaller things like how much we should spend on cable. But yes, I mean, it definitely isn't exactly the same. But in general, our big goals, like being able to save for college and retirement we back that off to, you know, every five or six years, which is fine for both of us. It works out. And the same thing, I've had things that I wanted to do right away that we couldn't quite pull off. So a lot of that conversation is about trying to find a balance between the two wants. I'm more in your husband's camp when it comes to a car.

And I bought one a few months back and it was not just the cardboard box on wheels that my partner would have rather I purchased. But I'll tell you, I'm happy every time I drive it. And that's why my partner and I keep our finances largely separate. We have just an ongoing conversation about it to make sure that we have everything covered and then some. But we also give ourselves enough leeway to kind of do what we want because we do have that understanding of where our money is going and that we're totally fine covering the things that we need to cover. Moving on with this wonderful structured acronym here, the last letter T, time barred, is really important for making sure that you have a deadline to keep the pressure on

so you can achieve your goal. And here is one area where I think you can even go a step further in thinking about breaking up your big year-long goal into smaller monthly pieces that you can achieve. And that can make it so that you know that you're on track throughout the year. And also it can provide a pretty steady feeling of accomplishment to keep up that motivation. Yeah, speaking of which, how do you guys keep yourselves motivated? I mean, the chunking it out into monthly or weekly or whatever goals helps, but how else do you keep yourself heading towards the finish line? principles of positive reinforcement, having treats for yourself as you make progress on your

goal can make sure that you're actually getting enjoyment out of what can maybe be not a fun process like curbing your spending. That can make it so that you actually will be more likely to keep working at it. Like if you're working on paying off debt, for example, maybe every $100 that you pay off, you can find a way to treat yourself like making a nice dinner or having a DIY spa day at home. But that makes sure that whatever you're working on, whatever progress you're making is not just some slog, you're actually having fun while you're doing it. I mean, honestly, for me, the greatest reward is logging into our spreadsheet where we track all this and just seeing the changes over time. I

mean, maybe that's super nerdy, but I just, I really like seeing progress laid out in black and white. And that feels like a reward to me. I love that too, especially because, you know, I mentioned that process of where I will continually up my savings throughout the month, depending on what money I have left over. And the most excruciating part of the month is waiting for those three to five days for the transfer to go through. But then once it hits that like rush of satisfaction of seeing that number makes me feel so good that I have even more incentive to keep going. Now all of us are surrounded by other nerdy people who love doing what we do and play with spreadsheets and all that. The other people listening might not be in that fortunate position.

So I want to encourage everybody to surround themselves with people who will help them get to their goals and encourage them. And if you don't have that among your family and friends, you can find those communities online. There are a lot of people that are working to improve their finances. A lot of people from similar backgrounds as you who understand where you're coming from and where you want to go and can support that. And that's a good reason to have something called an accountability partner.

And this can be a friend that you know in person, a family member, or even someone that you meet in an online community who has maybe already accomplished this goal before, or who can just be empathetic, be someone that you can vent to and get support from if you get off track and you're feeling a little bit discouraged. It can show you how to get through that, make you feel that you're not so alone throughout this process. Yeah. And that's really important. So we've run through the SMARTER acronym, and I think this is a great template for anyone who's looking to achieve a money goal, no matter what it could be throughout the year. But now I want to hear from both of you what you guys have planned for your money in 2021. So what are your

money goals for this year? Like Liz was saying earlier, the pandemic has completely changed how we have spent money and some of our costs have just gone way up actually. So for example, with childcare and schooling costs, they've just been a lot more than we've ever anticipated or we could have anticipated. And so for me, for 2021, for this year, it's really about just getting back on track with our savings. And it's not the year that we're setting huge, big, different, ambitious goals, but we're just trying to return to some of our previous savings goals and get back on track. So for example, I want to contribute every month to my kids' college savings accounts, and I want to contribute each month to our retirement accounts.

And if we can do that, if we can get back on track after what was such a hard year last year, then I'll feel really good. Yeah, that sounds great. I have a couple different goals, and one of them has to do with charitable giving. Every year we give a certain amount for a certain percentage of our income. And I really want to step that up for 2021. So that's one goal. The other is I now have an 18-year-old daughter and I need to get her set up for financial success in college, figure out what her budget's going to be. We're going to transfer her, basically her kiddie checking account to an adult checking

account, get her a credit card that she can use and get her used to paying that off in full. So basically just doing everything we can to while she's under our roof to get her set up so that she can be comfortable with finances when she's off on her own. Oh man, she is so going to thank you for that in a few years time because I wish I had that when I was 18. I'll say that. Yeah, there's a lot of ways to make some pretty serious mistakes and pretty big missteps when you're first getting started. So we're hoping to help her avoid those. Sean, how about you?

I have a pretty big goal and a pretty big life event coming up in the spring. And then this has been in part enabled because I was really lucky in 2020. I had my savings boosted by the fact that I wasn't spending money on things like travel. And I was actually able to put a deposit down on a new build home that will be ready in the spring. Congratulations. Thank you. Yeah, it's huge. And it's nothing too fancy. I was able to do it in part because it's a smaller home, but it's going to be ready for me sometime in the spring. And that means that I have closing costs to cover and I have to get some appliances and I have to get some furniture, all things that are going to be expensive. So that means that I am

entering a period of personal austerity and not buying anything I don't really need to because I need to fund things like that. So basically, I have these very specific savings goals that I need to hit by the spring. And to achieve those, I'm going to have other little goals that help me do that, like finding ways to be more frugal, especially when it comes to getting stuff for the house. Also finding ways to just trim other unnecessary expenses from my budget so that I can meet that savings goal that I have coming up pretty quickly. And speaking of community, a lot of us do a no spend month early in the year, either in January or February. And if you are looking to jumpstart a goal like Sean is, that can be a way to get yourself started. And what a no spend month basically is, is you just don't spend on non-essentials. Kim, have you ever done one of these? I haven't, but now I'm intrigued. I think I need to. It really is amazing. You can save, it depends on what your spending habits are, of course, but people save a few hundred dollars doing this. So it's a nice way to kind of get yourself psyched up and it only lasts a month.

So it's not like forever. And Liz, you typically do this in February. Is that right? Yeah, usually I do it in February, because that's the shortest month. And I like that. But this year, I'm doing it in January. So we're already started with this, I might join you. And let's see how this can go. Let's, let's see how much unnecessary expenses we can cut from our budgets. Okay, cool. We'll compare notes. Well, Kim, do you have any final thoughts around planning and achieving money goals in the new year? I think my biggest is to give yourself a break too. I mean, this has been so tough for so many reasons. Now we're starting fresh, but a lot of us are still recovering too. So it's okay if you don't have the most ambitious goal, but just even starting small with a small goal and working from there, I think can be really helpful.

All right. Well, thank you so much for joining us. I always appreciate it. Thanks for having me. And with that, let's get on to our takeaway tips. And Liz, do you want to kick us off? Absolutely. First, do your homework. Dig into the current state of your finances and your personal values to find goals that reflect your priorities and possibilities. Next up, make sure that your goals are smart and then make them smarter. Find a way to reward yourself for the progress that you're making on your goals. Finally, learn from 2020. Think about how the pandemic changed the way you handled money

and what habits you want to stick with after the pandemic passes. And that's all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com slash podcast for more information on this episode. And remember to subscribe, rate and review us wherever you're getting this podcast. And here is our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

And with that said, until next time, turn to the nerds.