Just like any goal we create -whether it be financial, health-related, education driven, or job-related, the most important thing about creating a goal is just that: creating it.
Setting goals forces us to focus on what’s important; without them, it’s hard to say what determines success for you.
Creating financial goals is no different. The first step is thinking about what you want your financial end result to be and then using the basic S.M.A.R.T guidelines to further determine the specifics of your goal and to help you achieve it.
What are S.M.A.R.T goals?
S.M.A.R.T is an acronym used for determining goals, it stands for: specific, measurable, actionable, realistic and timely.
Specific means identifying exactly what you want to accomplish. Vague, non-specific goals look like this: “I want to get out of debt” or “I want to save for retirement”. Some examples of specific goals include “I want to pay off $15,345 of my credit card debt by November 2016” or “I want to contribute $450 per month to my Roth IRA.”
Make it so that your goal can be measured. This way, you know exactly when you hit your goal and where you stand along the way. For example, a measurable goal may be “I want to save $5,000 by December 31, 2016” or “I will save 10% of my paycheck per pay period.” A good rule of thumb in making a goal measurable is to assign a number or a percentage to it.
Every goal you make should start with an action verb i.e. “start” or “save” rather than a “to-be” verb like “am” or “have.” For example, rather than saying “I want to be more consistent with saving money” change it to “I will save $100 per week.”
A good goal should stretch you past your comfort-zone, but be careful that the goal you set is actually attainable. For example, a goal that isn’t realistic is “I want to become a millionaire this month.” A better goal, more realistic goal is “I want to allocate $500 per month of the money I earn to my vacation fund.”
Every goal needs to have a deadline, or a time when you would like the goal to be accomplished by. A goal without a date is just a dream! An example of a goal with a deadline is, “I want to save $2,000 for my vacation by June 1st.” Deadlines create a sense of urgency.
Here are some examples of S.M.A.R.T, effective financial goals:
- Save $1000 in an emergency fund by June 2016
- Save $50,000 over the next 5 years to use as a down payment on a house
- Pay off $12,345 of credit card debt by December 2017
- Save 10% of my income in my 401k in 2016
Keep these questions in mind when starting to set goals:
- What obstacles keep you from setting your financial goals?
- Are there additional resources you think you need to feel qualified to begin setting your financial goals?
- What are the personal benefits of setting and accomplishing your financial goals?
It’s important to review your financial goals periodically. Finances are not static. As everyone goes through different stages of life, some goals may change or need to be altered for life events. That’s okay. What’s important is that you are managing your finances with some sort of goal in mind.
Set S.M.A.R.T goals, stay dedicated and experience financial success
By setting S.M.A.R.T goals you are creating a roadmap to financial success. Just like any goal we have in our life–running a marathon or losing weight–the most important thing in creating a goal is to create it and have the self-drive and resilience to make it happen.
Setting a goal forces us to focus on what is important; without goals, it’s hard to say what is important and what determines success for you.. Talk with a financial advisor to learn what steps you need to take to make your financial goals comes to life.
If there was one thing you could change about your financial reality, what would it be? Write it down in the form of a S.M.A.R.T. goal.
After you set your financial goals, you need to develop a plan to achieve them.
How will you pay off your debt in 3 years?
When are you going to make the time to track your expenses to be able to create a budget?
It’s easy to create answers to these questions and make a plan. As a reminder, all financial goals should be SMART:
- Time Bound
While it’s easy and exciting to set goals, it can be even easier to become derailed due to obstacles that life throws at all of us.
Here are a few common obstacles that get in the way of achieving your financial goals:
- Procrastination – ”I can start this next year”
- Laziness – ”I’m too tired to think about this right now.”
- Lack of time – “I have too much going on right now.”
- Do not recognize the need – “I make plenty of money, I don’t need a plan.”
- Lack of urgency – “I’ll start making plans once I’m older, it doesn’t matter now.”
- I do not have money to worry about financial planning – ”How can I plan around my money, when I don’t have much to plan with?”
- Fear of money – ”I just don’t understand finances.”
- An aversion to discuss money – ”I don’t want nor do i like to talk about money.”
It’s easy for these obstacles to slip into our journey of achieving our goal. Which is why it’s important to plan for these obstacles in the beginning of your goal setting process.
Accountability is huge in successfully accomplishing goals. Hold yourself accountable for the decisions you make that either help you achieve or distract you from achieving your goals. It also helps to involve a trusted friend or partner to hold you accountable – tell them what your goal is and ask them to keep you on track.
Be honest about what your obstacles are and how you plan to overcome them.
What is your biggest obstacle to setting your financial goals?
Have you ever written down your financial goals?
Planning for life’s obstacles
Answering these questions helps you define why these goals are important to you and can provide motivation when a hardship or detour comes along that distracts your from your goal. Take some time to go through your financial goals and ensure these questions can be answered and predictable obstacles are planned for.
What are some obstacles you face with your financial goals?
With the new year comes new resolutions or recycled failed resolutions from the previous year. Certainly hitting your goals will enhance our life…if you can just stick to your promises and hit the mark.
Unfortunately, 25% us will abandon our resolutions after week one which means 1 out of 4 reading this have already thrown in the towel. Another study says that only 8% of us will succeed at keeping our resolutions.
But eating healthier, working out more, reducing debt, traveling more, learning a new skill, starting a new business are good things to achieve.
If you want to increase your chance of hitting your goals, start by becoming aware of the 6 mistakes you maybe making in setting your goals and how to fix them.
(This is written in the context of setting financial goals and the top mistakes I see people make. You can easily adapt this to any goal setting in fact this was in part adapted from one of Michael Hyatt’s presentations on general goal setting.)
1. You create too many financial goals
Having too many goals can result in a lack of focus and often times some goals compete against each other. Unless you make tons of money, it is impossible to save more for retirement, pay off your student loan and fund your kids’ college account at the same time and make meaningful progress. Remember the ancient Chinese proverb:
The man who chases 2 rabbits catches neither!
Ask yourself what goals are most important to achieve.
Tip 1: Narrow your financial goals to 2-3 for the year
2. You don’t write your financial goals down
In a study conducted by Gail Matthews of Dominican University of California, it was found that you are more likely to achieve your goals simply by writing them down.
Writing a goal down makes it real as opposed to just thinking, wishing and dreaming about it.
Tip 2: Write down your financial goals
3. You don’t make your financial goals measurable
Financial dreams and financial goals are two very different things. Financial goals must be specific and concrete. With setting a financial goal, be sure to quantify the goal. In other words, make your financial goal measurable by assigning a number or percentage to the goal.
If you can’t measure it you can’t manage it.
Tip 3: Tweak your financial goals to make them measurable
4. You don’t assign a deadline
Deadlines create a sense of urgency and they help prioritize daily tasks. A deadline will push you towards taking action. It will force you to think about all the steps you need to take to achieve your goal and force you to cut out distractions.
Tip 4: Assign a deadline to your goals
5. You don’t identify the next action
One of the biggest challenges you face is procrastination. A way to combat procrastination is to break your goal down into bite-sized pieces and focus on the next step. Matthew Kelly in his book “Resisting Happiness” says procrastination is one way “resistance” manifests its way in our lives. He defines resistance as the sluggish feeling of not wanting to do something that you know is good for you. Make it easy for yourself and make the next step of reaching your goal clear and actionable.
Tip 5: Identify one next action step for each financial goal
6. You don’t keep your financial goals visible
Out of sight, out of mind. If you can’t see your goals regularly, it becomes easy to ignore them or worse, you may forget about them.
Tip 6 : Decide where you will display your goals and post them
Since I am writing form New Orleans I thought I’d throw in a lagniappe mistake and a tip on how to fix it. This, in fact, may be the most important one.
7. You don’t make you financial goals compelling
Pursue goals that really matter to you. You’re setting yourself up to fail if your financial goals are not compelling TO YOU. Attributes of compelling goals are that they are: spiritually meaningful, intellectually stimulating, emotionally energizing, and physically challenging. If your goals don’t touch on one or more of those attributes, start over.
Lagniappe tip: Evaluate each goal and make sure it is truly compelling and meaningful to you
If there is something bothering you about your finances, that is usually the best place to start with setting financial goals.
So ask yourself: “If there is one or two things you can change about your finances this year, what would they be?”
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