Financial Goals
Improving your life by setting goals that are not only feasible, but achievable
If you’re anything like me, I always have great ideas, and detailed day-dreaming sessions about all the things I want. And it ranges from small things like the the next set of bar stools I want for my kitchen, to which Mercedes Benz I want within five years. Even though I come up with all sorts of plans and ways to make my desires realistic and attainable, somehow even with the best intentions, the train always seems to fall off the track within a few days or weeks. Sometimes it is because of an unforeseen, most times it can be attributed to a lack of discipline and follow through.
The best cure for this is to set meaningful financial goals, and a budget strategy that balances the necessity of sacrifice and room for enjoying things that bring you happiness and peace. Without these two things working hand-in-hand, feeling stuck and unhappy will be a constantly recurring theme, especially if you want your future to be a drastic improvement from your current situation (and who wouldn’t want their future to be better than their present)?
In this article we’ll take a deeper look at what financial goals are, and briefly touch on the correlation between effective goal setting and budgeting.
What are financial goals, and why do they matter?
Goals, and goal-setting are concepts that hopefully aren’t new to you, but in the event that it is, goals (according to Miriam-Webster) are “an end toward which effort is directed”. Which simply means that a goal is the end result of a thing you give your effort and energy to accomplishing. By this standard, financial goals are a financially-oriented result that you direct your energy and resources toward attaining. For example, some goals may focus on a specific dollar amount like earning an extra $1,000/month or paying off a $300 credit card balance by the end of the month.
Other financial goals maybe long-term in nature, for example saving for the down payment on a house, or saving for your newborn’s college expenses. (which as of the time of this writing, will cost you your firstborn and your soul)!
Whatever the financial goal is, identifying a thing you want in the future is the first step to setting yourself up for success. From this point you can engineer a plan to leverage your available resources to work toward your financial target, and that target is your financial goal.
There are many ways to breakdown financial goals, for the purposes of this article we’ll focus on a 2-tier breakdown, short-term and long-term goals:
Short-term goals: These goals are ones that are set with a relatively short timeframe. typically within a year, at max, two years.
Long-term goals: These goals require you to “zoom out” and see things from a bird’s eye view. This group usually includes goals that need at least two years to achieve. There is no real limit on how far out these goals can be, so the limit is largely up to your own imagination.
Financial goal-setting is best done with a combination of both short-term and long-term goals. Having a diversity of monetary objectives will prove to be beneficial because it gives you the opportunity to have sequential goals that over time have a major cumulative effect. Structuring your goals in a cohesive and sequential manner, which combines daily, weekly, monthly, quarterly, and long-term goals will provide you with a path to accomplish your goals while also experiencing the satisfaction of seeing smaller goals being accomplished along the way.
For example, having a short term goal of paying off a credit card balance, can be connected to another short-term goal of funding an emergency fund, which in turn helps you secure the amount needed for a down payment on a house. Seeing the progression of the small goals turning into additional motivation to take on larger goals, is a feeling that can not be easily replicated.
The power of smart financial goal-setting will help you create and leverage systems that make your financial life much more streamlined, and stress-free.
So how do I set financial goals?
So here we are, you’ve consulted with your vision board, you’ve dreamed up every aspect your ideal life, complete with the house and car you want. Now you understand a very efficient way to structure your goals. Everything seems like open, green pasture. Until you realize a glaring issue: how do you set financial goals?
Well since you’ve read this far, I think you deserve to know the answer to that age-old question. Because otherwise you will set “goals” that are really “financial fantasies”, that you won’t commit to manifesting, especially not when things get tough. This is the time to get a clear idea on a few key things, starting with what you want your future to look like, who you want to be surrounded by, where you will live, what do you want to experience, and how you would describe your quality of life when you are in this new reality.
Here are a few examples for those who are like me, and get our best ideas from seeing examples first:
Short-Term Financial Goal Examples
Cutting unused streaming services
Joining local a hiking group on Facebook, (as a way to save money via a relatively low-barrier-to-entry hobby)
Build an emergency fund
Repainting the kitchen
Paying off a credit card
Saving for a trip to a nearby tourist attraction
Long-Term Financial Goal Examples
Grow your retirement investment to $200K
Visit a country you’ve spent a long time learning the language and culture of
Start and run a successful small business
Pay for your kids to go to college without borrowing
Own a rental property
Knowing your financial priorities will make this process a lot smoother for you, because choosing financial goals that don’t excite you will make this whole exercise feel more like a chore than an opportunity to take control of your life. If you’re struggling to come up with smaller goals, try starting with a large, long-term goal and work your way down to small, daily goals. So that way you could literally start on the long term goals today!
The worst thing you can do is to set financial goals that lack a “Why”. Starting with your “why” will give you a deeper emotional connection to your goals than simply setting arbitrary ones. Your “why” is the reason you do things you don’t want to do. For example your why might be to retire your parents, so they never have to work again. Or to provide your kids the best opportunities for success. The important thing above all else is that the goals you choose actually matter, to you.
Living your dreams while you’re awake?
Your dreams are now on paper, in considerable detail, and you’ve established an emotional connection to your goals. Now it’s time to create the actual plan. It’s important have an idea of how much it will cost to achieve your goals, which will take a bit of research regarding how much your dream car costs how you’ll finance it and so on.
One of the most popular ways to break down your goals is using the SMART method. Which is an acronym that states that specific, measurable, achievable, relevant, and time-bound. Here’s how that method would work for a goal of funding an emergency fund:
Specific: I will build an emergency fund of $20,000.
Measurable: I will save $5,000 per year, which is $416 per month and roughly $14 per day.
Achievable: My budget includes up to $450 of discretionary income that enables me to save the targeted amount of $416 per month.
Relevant: According to my income and expenses over the past year, I should be able to achieve this goal.
Time-bound: I will have this goal accomplished within four years.
With the SMART framework as the basis of the goal-setting, you can create and a develop a plan that will all but guarantee you will achieve the items you listed as your goals. Of course, you’ll need to remain consistent, track your progress and celebrate your milestones, regardless of how minor they may be.
The benefit of making the daily targets visible and top-of-mind, can not be understated. So keeping them in places you know you’ll see everyday, like a calendar, is a great way to keep your focus on your goals and plans.
The Bottom Line
Financial goal-setting is a concept that many think they truly understand, in most cases a true understanding is lacking. There is a big difference between financial wants, and financial goals. Too many people have things they want on their vision board, and think that purely “claiming it from the universe” will guarantee it happens. While there is some merit to that, a better strategy would be to take this system and apply it to your own personal financial desires and put in the necessary sweat equity to live the life that you feel is fitting for yourself.
Frequently Asked Questions (FAQs)
What determines the priority rank of a goal?
After you have a list of all your goals, reviewing them to see which ones are the most important to you is a good way to decide which goals are the most important to work toward. Once you have a shorter list of goals that are more important than most, the next step is to differentiate between ones that are needs and wants. For example not everyone may feel that paying off student loans is a high-priority goal. That being said, typically long-term goals are the ones that will be the priority, largely because of the sense of accomplishment that is associated with scratching a major goal like “buy a home” off your list.
How often should you revisit your financial goals?
The frequency of the check-in is largely dependent on the goal timeframe. For goals that may take more than a few months to accomplish, then a monthly check-in would be the smallest interval I would recommend. However for goals that are shorter in timeframe, daily or weekly check-ins may be more appropriate.
During these check-ins, it’s important that you review the end result as well as evaluate your current status and progress. During this time, assess whether your goals still align with the future you want. Then take a deeper dive into your goal review at the end of each year, to make sure that you are still on course. Depending on the results, you may want to take a more aggressive approach, or reassess how you can meet your existing targets.
