Solid goals are the backbone of effective financial planning.
Attempting to save money and cut down on expenses without goals is a crapshoot. You might make minor progress, but you’re not going to be successful in the long run.
Here are a few tried and true ways to set (and, more importantly, stick to) realistic and achievable goals on the path to mastering your personal finances.
Set Clear and Attainable Financial Goals
It’s imperative that your financial goals are clear and attainable. Each small goal should act as a step towards a larger one.
For example, reaching the goal of paying off credit card debt allows you to put that extra money into a savings account in the future.
Getting rid of the debt was a small step towards your larger goal of increasing the amount you have in savings.
In other words, keep things bite-sized. Don’t bite off more than you can chew by setting unrealistic goals like “I want to make a million dollars in the next year.”
Or, I want to be Oprah-rich before I’m 40.
Keep your goals realistic so you can make incremental accomplishments over time.
Write Down Your Financial Goals
One of the most important pieces of advice I’ve ever received about setting goals: write them down!
I love using Evernote to track my to-do lists, writing, and most importantly, my goals.
Don’t tell my wife, but Evernote is practically my work wife.
By writing down your financial goals, you can review them on a daily basis to ensure you’re on the right path.
Or, you can rework and revisit them as necessary.
Wednesday, January 18 Goal: Write an article about setting and sticking to financial goals.
What’s the Goal of Your Financial Goals?
Setting goals without any rhyme or reason will almost certainly result in failure. Don’t just set financial goals because it’s what smart people say you should do.
Myself included, of course!
Think about the big picture when setting your financial goals.
Visualize the end result of your goals. That could be paying off consumer debt, buying a new house, or even early retirement.
Whatever the reason behind your goals, make sure it’s actually important to you.
Keep Yourself Honest with Deadlines
Create a plan (in Evernote!) for accomplishing your goals that uses incremental deadlines.
- Large Goal: Buy a cottage in 5 years
- Medium Goal: Buy land for cottage in 3 years
- Medium Goal: Save $20,000 by 2018
- Small Goal: Reduce to one car instead of two by 2017
- Small Goal: Find a side hustle to help with cottage fund in next 3 months
Get the point? And each of these goals and be broken down into specific daily, weekly, and monthly tasks.
Not only do deadlines help set up a solid framework to work from, they also keep you honest. They make you work harder to reach the goal within a set time frame.
Instead of making it your goal to pay off your debt someday, make it your goal to pay off your debt by the end of the year.
According to Money Crashers, goals with “someday” deadlines are rarely reached.
Set Up Automatic Transfers
It goes without saying that saving money should be one of your financial goals.
Yet it’s all too easy to spend the money you intend to save when it’s just sitting in your checking account.
An easy solution is to set up automatic transfers. A pre-set amount of money will be moved from your checking account to your savings account at the same time each month.
Automatic transfers help you avoid those unnecessary daily expenses, like morning lattes at Starbucks, that threaten to eat up an otherwise effective financial plan.
Use Financial Management Software
Financial management software helps you track your income and expenses.
Utilizing such software is the best way to set and stick to a financial plan.
It lets you see exactly where your money goes each month. This allows you to more easily make changes to your spending so you can reach your financial goals faster.
Quality software, like Mint.com, also allows you to easily see your progress.
A variety of colorful charts and graphs help you visualize your progress towards your goals.
We all love fancy colors!
Final Thoughts on Setting Financial Goals
The opportunities to reach your financial goals and improve your financial health are almost endless.
The key to actually capitalizing on these opportunities is to set small, actionable goals that act as baby steps in your overall financial plan.
Each time you meet one of these small goals, you’re that much closer to mastering your personal finances.
And don’t forget to celebrate achieving goal milestones! Just don’t spend too much money doing it.