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Have you ever set a financial goal for yourself with the best of intentions, only to find yourself derailed after a few months? If so, you're not alone. Just look at how many people start the New Year off with a brand-new gym membership, only to stop going after a few months.
Let's get back to the basics of financial goal setting so you can set yourself up for success.
What Are Financial Goals?
At first glance, this section may seem a little silly. The definition of financial goals seems self-evident. But sometimes, it's easy to look at only money-related goals (wanting to save $20,000 this year) and not the money-required goals that accompany the rest of your life (buying a house, taking a sabbatical from work, or funding your dream vacation).
When you start to identify some of your financial goals, it's important to figure out which goals fall under short-term financial goals, and which require a more long-term plan. In general, short-term goals are defined as any goals that will take three years or less to complete, while long-term goals may take three to five years (or even longer).
Why is it important to identify a time frame for your goals? If your goal is to have $10 million saved in your retirement account by the time you're 65, it can be hard to stay motivated for a goal that feels so far away. By having a mix of short-term and long-term goals, you'll be able to build up successes that will help you stay focused on the goals that will take a little longer.
Setting Financial Goals
Now it's time for the real work. When it comes to identifying your financial goals, leave no stone unturned in any area of life. What does your dream life look like, and how similar is it to the life you lead now? Where are the disparities? Most importantly, are you and your life aligned with your current financial goals? And if not, what do you need to do to close the gap?
The importance of getting clear about the kind of life you want to live and writing it down is two-fold. First, you'll have a written record of what you want to do rather than ideas floating around in your head. This may seem like a simple tactic, but it makes a difference to see your goals in writing in the physical world. Once they're down on paper, you can start to identify which parts of your life match, identify which parts don't, and start to close the gap. Second, having something to hang onto is important when the going gets tough. Life happens, and without fail, there will be some speed bumps along the way. Writing down your goals can keep you focused when the road gets rocky.
Setting SMART Goals
Now that you have your goals and dreams written down, it's time to figure out how to make them a reality. Sometimes, this is an easy thing to do, like canceling a subscription you no longer use or calculating how much it will cost to spend two weeks in Bali.
One of the easiest ways to turn your goals from dreams to reality is to use the SMART goal method. SMART is an acronym that stands for Specific, Measurable, Achievable, Relevant, and Time-Bound. By applying this metric to each of the goals you've defined above, you can create a simple plan for each one.1
Let's use the example of saving for a trip to Bali. A few actions that you can take include finding the best time of year to travel to Bali, researching the costs of flights and accommodations, and deciding what activities you want to do when you're there. But that doesn't necessarily mean that you have an actionable plan to make this happen. Here's how we can apply the SMART method:
- Specific: I want to save for my dream vacation in Bali. I have estimated that this trip will cost $5,000.
- Measurable: Broken down, this means that I need to save roughly $97 per week or $388 per month.
- Achievable: My current budget includes $1,000 of disposable income per month, which allows me to set aside the required funds.
- Relevant: Based on my income and expenses for the past year, this should be achievable.
- Time-Bound: I want to achieve this goal within the next year.
Now that you have identified a SMART goal, it's time to get started. Make it as easy as possible to save by setting up automatic transfers to a special savings account that you know you won't dip into when a sale at Nordstrom tempts you. Track your progress, celebrate your wins, and know that a year from now, when you're lounging on a pristine beach, you'll have proof that you can set and achieve your financial goals.
Whether they include paying off debt, saving for retirement, funding education, or funding your dream trip, setting SMART financial goals will help you build the life you've always wanted.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.