If you want to accomplish big things with your personal finances, you need to understand where you're starting at and where you want to go. Identifying what you want to accomplish is the first step to creating an action plan and succeeding. In other words, setting financial goals is critical if you want to make the most of your money and achieve what you want.
Goals are so instrumental to our success because they give us purpose and direction. They keep us motivated and moving towards where we want to be, and prevent us from getting distracted by other, short-term things that pop up in our daily lives.
But not all goals are created equal, and there's a right and a wrong way to set yours. Use these 4 tips to establish financial goals that you have a better chance of reaching and achieving:
1. Make Your Goals Tangible and Specific
When setting a goal, drill down to identify a specific milestone or accomplishment you want to work for. Don't settle for vague ideas or goals that you can't measure.You need to understand exactly what you want to achieve -- and you need to be able to recognize when you've actually made it happen.
So, instead of saying "I want to save more money," make your financial goal that involves saving money something like, "I want to create a $10,000 cash emergency fund in two years or less."
The first iteration simply had you saving money. But it didn't provide any direction or clarity. The second version, however, was a concrete idea (funding your emergency savings account ) and provided you with specific parameters (funding your emergency savings account with $10k in two years or less). Getting specific and working with tangible goals helps you understand exactly where you're going and what you need to do to get there.
2. Keep Financial Goals Realistic By Breaking Them Down
You may want to aim for the stars with your biggest financial goals, and that's great! But you also need to stay somewhere near the realm of reality; otherwise, you might find yourself discouraged and disengaged if you constantly set goals that are well beyond your ability to achieve.
It's tough to strike a balance between goals that push you to succeed, and goals that leave you feeling defeated because you finished a long way from achieving what you set out to do. Instead of setting a massive goal, like "become a millionaire by age 40," break things down into a series of bite-size goals that you can work on one after the other.
By breaking down huge goals and working toward them bit by bit, you'll create a clear road map to success -- and you'll likely stay motivated and interested in pursuing your dream as you get to celebrate accomplishing several goals at regular intervals.
3. Create Positive Goals
The financial goals you set should be positive and focused on bringing more of the good stuff into your life, rather than negatively-focused on thing that you want to eliminate or remove. Here are some examples of positive goals:
- Fully funding a Roth IRA for the year
- Increasing income by 2% by starting a side hustle
- Spending more time with family or friends engaging in free activities (like going for a walk or playing games)
Negative goals are ones that have you moving away from something that makes you feel badly instead of making progress towards a positive outcome. For example, avoid making your goal something like, "I will spend less money this month." Replace that with "I will put an extra $200 towards my savings this month."
4. Put the Focus on You
Many goals are set with good intentions -- and yet the people who created the goal still fall short of achieving it. Why? It's more likely that you'll fail to achieve a goal if you're working towards it for anyone other than yourself.
Your financial goals need to reflect who you are, what you value, and what you think is important. If you're not working towards accomplishing a goal because you want it, or because it makes you feel good, or because it puts you in a better situation, it's going to be really difficult to find success. These are your goals. They need to be all about you!
When you set goals for yourself, and not for anyone else, you can be self-motivated. No one will care about your success as much as you do -- so don't let anyone else dictate the kinds of financial goals you find important.
What financial goals are you currently working toward? How do you set new goals?