Setting Financial Goals

Introduction

Through working with others on their finances (and even with my own finances), it is amazing how quickly money can seemingly evaporate. Put simply, money that doesn’t have an assigned purpose will get spent, and almost certainly on frivolous things that bring no lasting benefit. Even if you have a spending plan and are tracking your expenses, what amount of money spent on restaurants or entertainment is too much? This is where your financial goals become very important. These goals give direction and purpose to your money. They will help you decide when your expenses are balanced with your future planning. Financial goals also give you a roadmap to follow through your financial journey. If a budget is the tactical

implementation, your financial goals are the overall strategy guiding your decision making.

Assess Financial Situation

The process of defining your financial goals must first start with a realistic assessment of your financial situation. How much do you make? What financial obligations do you have (mortgage, car payments, utilities)? How much money do you have in savings or other liquid assets. What is the value of retirement savings? These are just some examples of the questions you will want to find answers to. The key is to get as clear a picture of your financial situation as possible. This will help you going forward to make realistic goals and also avoid some obstacles.

While you are in this mindset, this is also a great time to assess your insurances. Insurance is a topic for another day, but some insurances are very important to protect you financially. You will want to make sure you have the right coverages in the right amounts set up going forward.

Define Goals

Now, sit down and think about what you want to accomplish in your life. If you are married or have a serious significant other, you will want to do this together. Write down some ideas (not quite goals yet, but the start of them) for short-, medium-, and long-term accomplishments. Maybe you want to replace one of your aging cars, save for the kids’ college, or pay your house off early. You should also think about what you want your retirement to look like. I can’t give you all the examples because this must come from you.

One of my favorite systems for creating goals is the S.M.A.R.T. goal system. This stands for Specific, Measurable, Achievable, Relevant, and Time-bound. Specific means that we want to really dig into the details of our goals. “I want to enjoy retirement,” is a dream, a wish. It’s not a goal. To make it specific, we need add detail to this dream, make it exceptionally vivid. What does an enjoyable retirement look like? Goals must also have a way to measure progress. Give yourself a target to shoot for, which will also help going forward to track your progress. Achievable simply means that your goals need to be realistic. Setting goals that you have no hope of accomplishing will only serve to frustrate you. Spending $0 at restaurants cold turkey when you are used to spending $400 per month may not be very realistic, and when you end up spending that money, you will get discouraged. Decreasing

that amount to $200 or less might be a more achievable goal, at least in the short-term. Your goals also need to be your goals. That sounds simple, but you might be surprised how often people set financial goals for themselves because they heard from a friend or on a podcast that they should be doing something. If your goals aren’t relevant to you, you will have very little motivation to push towards them. Finally, your goals need to have a time frame. Without this, it is too easy to keep putting off the work. It also complicates the process of creating your roadmap. So, once you have your goal ideas, work on turning them into S.M.A.R.T. Goals.

Prioritize Goals

If you are normal, you will end up with a long list of goals. Realistically, people can only work toward a limited number of goals at the same time. The less effort and brain power goals take, the more you can handle, but you will still be limited. For example, once you have a plan down for your retirement savings, it takes very little effort to keep working toward that goal. Set up automatic deposits into your retirement accounts, and meet with your Financial Advisor occasionally to check on your progress. The rest of the time, you can put this out of your mind. However, building the habit of tracking your expenses is going to require much more time and effort. The danger of focusing on too many goals at once is spreading yourself too thin. You run the risk of jeopardizing those goals because you aren’t devoting

enough time or resources to them.

Therefore, once you have your goals, start to prioritize them. This is going to specific to your finances. Decide which goals are more important or time-sensitive and rank those higher. Also, take the time to realistically decide which goals are essential and which goals are desirables. It should go without saying that essentials rank higher than desirables.

Break Goals into Actionable Steps

This is the step I so often see people miss and am guilty of skipping myself. Once you have your prioritized goals, you need to build a roadmap to accomplishment. The longer-term goals are, the more important this roadmap becomes. People need to be able to see progress and measure whether or not they are on track to meet their goals. Actionable steps are the key to this process. Every goal should be broken down in multiple steps that lead toward the accomplishment of that goal. Setting up your retirement savings might require investigating options at work, determining how much you need to be setting aside,

contacting a financial advisor, and setting up recurring automatic deposits just to name a few. These are action items that you can take, and each item takes you one step closer to your goal. In this way, you can easily see that you are making progress.

Especially for long-term goals, this may not be a one-time process. You should evaluate your progress regularly and adjust as needed. If you decide you do need to make adjustments, you may need to figure out a new series of actionable steps to get back on track. Like a budget, your goals are not static. They change and evolve with you and with life.

Challenges

Unfortunately, along the way you are going to face challenges. Setbacks and obstacles are common on the journey to reaching your goals. There are some things you can do to help overcome these challenges. First, keep your goals and the reasons for them in mind. If a goal is important to you, it is easier to push through challenging times and keep making progress. Some people put pictures in commonly visited areas that help remind them why their goals matter and help their goals feel more tangible. Secondly, make an effort when you are roadmapping your goals to identify possible obstacles before they happen. You

certainly won’t identify all of them, but the ones you are able to identify beforehand will be less discouraging and easier to overcome. You can even brainstorm ideas to deal with potential obstacles so you are ready to face the problem before it arises.

When you experience setbacks (and you surely will), take time to reevaluate. It is possible that some setbacks may render certain goals irrelevant. In this case, you may want to establish some new goals or move on to other goals in your list. Does this setback require you to adjust the timeframe of your goal? That is a perfectly acceptable response. You may even find that the setback doesn’t affect your goal as much as you thought it would. Regardless, take the time to reassess your situation and your goals, adjusting as needed to stay on track.

One of the biggest challenges in reaching your goals is endurance. It is very easy to get burned out or become discouraged. One way to fight this is to celebrate your milestones. If you made your actionable steps, celebrate when you accomplish them. Depending on the size of the milestone, it may be a small celebration or a bigger one, but the joy of celebrating your accomplishments helps motivate you to continue. You can also take a look back at where you started to see how far you have come. When we are mired down in the

journey, it is easy to lose track of our progress. Keep your milestones handy; write them down, and cross them off as you accomplish them. And keep those pieces of paper to look back on later. Also, put a support system in place. There should be other people around you to celebrate your victories with you and hold accountable to your plan. It is amazing how much effort people are willing to put forth when someone is there to cheer them on. Identify people in your life who care about you, who want to see you succeed, and who are willing to push you when you need a push. Talk to these people about your goals and your milestones, and establish a routine for checking in with them.

It is very easy to feel like a rudderless ship in life. Most of us have so many things going on, so many things demanding our time and attention, that it becomes easy to get bogged down in the day to day. Unfortunately, we can find ourselves years down the road with very little to show for our time, and time is the one thing we can never have more of. Putting goals in place in your life puts the rudder back on the ship. It ensures your life has direction and meaning, and it gives you map to follow to reach your dreams.