If you are like me, you begin the year with a list of goals, a vision board and a promise to achieve all goals by the end of the year. Then, as the months go by life happens, priorities change, and you lose that drive to get through your list of goals or simply forget about them. This may be happening to you because you are going about setting your goals all wrong. This post is to help you establish an approach to setting and maintaining that enthusiasm to achieve your financial goals.
The Why Strategy: Your Goal Must Move You
First, ask yourself why you want to achieve this goal. This may seem like a simple question, but your first answer probably won’t keep you motivated throughout the year. Let’s use Mary, a 26-year-old professional, for our example. One of Mary’s goals is to save to go back to school. To determine why she wants to achieve this goal we’ll use the Why strategy. Simply put, keep asking yourself why you want to achieve a particular goal until you reach an answer that creates an emotional response:
- Why does Mary want to go back to school? To pursue an MBA.
- Why does Mary want to pursue an MBA? Because she wants to be considered for a promotion.
- Why does she want to be considered for a promotion? Well, she wants to earn a higher income.
- Why does she want to earn a higher income? She wants to provide the best quality of life that she can for her children.
A close look at Mary’s responses will reveal the real reason she wants to save money for an MBA. Her fourth response is far more motivating than the first and it is this motivation that will fuel her drive to remain focused throughout the year and achieve her goal. Use the Why strategy to find the real reason you want to accomplish your financial goals and you may find you are more driven to achieve them.
The SMART Strategy: Specific, Measurable, Achievable, Relevant, Timely
Establish SMART goals. SMART is an acronym used to guide goal setting and its objective is to provide a criterion to make goals more achievable. I’ve broken down how the SMART acronym below along with how you can apply it to your goals.
- S – Your goals need to be specific. Mary’s goal to save to go back to school, for example, is NOT a specific goal. There’s no information on where she wants to go or even what concentration she wants to pursue. A specific goal would read:
Save to pursue an MBA program at Purdue University
- M – Often we create goals without establishing a way to know how close we are or if we have achieved them. Your goals need to be measurable. Mary wants to go back to school but has no way of determining how close she is to achieving this. A measurable goal would read:
Save $50,000 to pursue an MBA program
Mary is now able to track how close she is to achieving her goal and thus will likely remain motivated to achieve it.
- A – It’s one thing to have goals; it’s another to actually achieve them. Your goals need to be attainable, otherwise you will become demotivated and stop trying to achieve them. If Mary’s after tax earnings is $65,000 and she lives in New Jersey, it is very unlikely that she would be able to save $50,000 in one year. A more attainable goal would read:
Save $20,000 to pursue an MBA
- R – Are your goals relevant? It seems an odd question because one would think if you’re establishing goals then these goals must be relevant. One way to find out if your goal is relevant is by trying out the why strategy from earlier in this post. Your real reason will help you determine if the goal is relevant enough to keep you motivated and determined. A relevant goal would read:
Save to pursue an MBA program to provide a better life for my children
- T – Finally, is your goal timely? Having a goal with no specific timeframe within which to achieve it is like having no goal at all. Without a time frame you will not be as motivated to achieve your goals. A timely goal would read:
Save to save to go back to school in fall 2021
Considering all the above, our SMART goal would then read:
To provide a better life for my children, save $20,000 to pursue an MBA at Purdue University in fall 2021
This goal has met the criteria that will keep Mary motivated and focused on achieving her goal. It moves her, it is specific, it can be measured, it is achievable, and it has a timeframe in which it should be accomplished. Try the tips in this article and start your journey to financial wellness.
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6 thoughts on “Personal Finance: Setting Goals”
Excellent content! These are practical ways of ensuring more than adequate results are achieved when it comes to finance.