Why do people fail to meet their goals? Usually, because they don’t have a plan and as Benjamin Franklin said: “if you fail to plan, then you are planning to fail”. The process of setting financial goals in the short, medium and long term, will establish good habits and adhering to consistent saving patterns will set you up for improved financial success.
How to Set and Achieve Your Financial Goals
Before setting financial goals, know where your money is going. If you track your spending, you may be surprised with how much you are spending and where. Then make a plan that sets and prioritises your goals. You can do this by developing a financial goals chart using the following five steps:
- Write down one personal financial goal. It should be specific, measurable, action-oriented, realistic and it should have a timeline (further detail below under SMART Objectives).
- Decide if your goal is short-term, mid-term, or long-term, and create a timeline for that goal (more detail below under Types of Goals).
- Determine how much money you need to save to reach your goal and break that down by the month and/or year.
- Think of all ways you can reach that goal-saving, cutting expenses, earning extra money, or finding additional resources.
- Decide which is the best combination of ways to reach your goal and write them down.
After accomplishing some of the easier goals, you gain confidence, giving you motivation to achieve the more difficult goals that require more time and discipline.
Types of Goals
Your goals can be separated into three categories of time:
- Short-term financial goals take under one year to achieve. Examples may include taking a vacation, buying a new major appliance or paying off a specific debt.
- Mid-term financial goals can’t be achieved right away but shouldn’t take too many years to accomplish. Examples may include purchasing a car, finishing further study or paying off all of your debts.
- Long-term financial goals (over five years) may take several years to accomplish and, as a result, require longer commitments and often more money. Examples might include buying a home, saving for a child’s college education, or a comfortable retirement.
The goal-setting process involves deciding what goals you intend to reach; estimating the amount of money and resources needed and planning how long you expect to take to reach each of your goals.
Use SMART Objectives to Set Goals
When we have a broad goal like “get healthy,” the failure comes in not knowing where to start. We need to reframe the goal to actionable steps – what do we do to make it happen? The best way is to use SMART Objectives.
SMART Objectives are:
- Specific: Start with the process at first. Decide on a specific action step you can take. For example, to “get healthy”, you need to run and eat well.
- Measurable: How will you know if you’ve reached your goal or not? Turn action verbs like “run” and into quantifiable benchmarks. You need to be able to answer the question, “Did I get it done? If not, how much further do I have to go?”
- Attainable: The best way to achieve a goal is not to rely on motivation, but instead make it easy for you to do the right thing. Instead of committing to running 5 days a week, start with one day and move up from there. Also make sure you have the resources to achieve your objective – i.e. a gym membership, running shoes.
- Relevant: Ask yourself if you really care about this – why are you doing it and is it a priority or will it compete with other goals in your life? Plus, how will you feel when it is achieved.
- Time-oriented: Create a deadline to reassess your goal and make sure to put this in your calendar!
Being specific, being realistic, and using systems can help you actually achieve your goals.
Top 10 Financial Goals
Develop a spending plan and review it weekly. Clearly define the amount of income and fixed expenses in your household.
- Pay off credit card debt. The interest charges on credit card accounts eat up so much of the cash flow that could be used for other objectives. Once you pay them off, you should be conscious about not using the credit card as much.
- Save an emergency fund. Three months of liquidity is a minimum standard. Six months (or more) is better. In a fragile job market, emergency funds are essential.
- Save for retirement. Make saving, particularly retirement saving, as exciting as consumption. It gives us the capacity to reach our long-term dreams.
- Live below your means. If you spend more than your income, there’s debt. If you spend less than your income, there are savings.
- Develop skills to improve your income. This might mean taking on additional training or responsibility at your current job. Or find a mentor, who can provide tips and feedback, or working a part-time job. It could also mean attending conferences and workshops, networking, anything to acquire more contacts and knowledge.
- Save for your children’s education: Two-thirds of all job openings in the future will require post-secondary education or training.
- Save a down payment for a home. For most people, it’s the most significant purchase and investment. The greater the down payment, the more freedom and flexibility that’s provided for the life of the loan.
- Improve your credit score. In order to get that home or any other transaction that requires a loan, it’s always to have a good credit score which will potentially save you money by qualifying you for lower interest rates.
The bottom line is everyone can do more and everyone should do more to plan for their financial future. Make a plan, then follow that plan.
Staying on Track
There are many online resources to motivate you to stay on course, such as financial apps for goal tracking or the old-fashioned methods such as lists, spreadsheets or even photos/images. When you achieve one of your money goals, there’s nothing wrong with rewarding yourself to celebrate a job well done.
Plan to Work Toward Financial Success
Reaching a point of financial independence in life has nothing to do with luck or magic. It’s simply a matter of setting good financial goals and having a concrete plan as to how you will achieve them. Once your plan is established, and working toward those goals becomes a habit, achieving financial independence can almost happen automatically.