A Practical Approach To Setting Financial Goals

To some, goal-setting may seem like an unnecessary task. Rather than investing time and energy towards setting goals, many people go about life without a well-defined path. What’s wrong with that? After all, if we’re too focused on attaining set goals, we may miss out on an opportunity, right?

I believe in remaining open to a new calling, opportunity, or challenge in life. However, I also believe in the importance of goal-setting, related to finances, physical well-being, spirituality, or another area of your life.

Goal-setting is so important that one of the first things I do when partnering with a new client is to have a goals and objectives meeting. Sure, I ask some “standard” questions, but more importantly we spend time discussing life in general. What is life like now? How about growing up? What might the future look like? The more I listen, the more I learn about the person’s values and beliefs, and ultimately we’re able to develop actionable short and long-term goals.

Before exploring some ideas to help you create financial goals, it’s important to take a look at several reasons people frequently don’t meet their stated goals:

Goals Are Too Hard
Some goals should inspire you to stretch yourself and dream a little bit. However, it’s important to make some goals easier to attain than others, particularly if you’ve never set goals before. Don’t sell yourself short, but remain realistic. If you’re a new parent, that dream trip to Hawaii with your spouse probably won’t happen next month!

We Set Too Many Goals
Too much something will usually overwhelm. Goals are no different. Limit yourself to no more than 5 goals at a time. This will allow you to focus your attention and energy. Also, have a brief, but regular reminder of your goals. Write them down on a notecard and tape it to your bathroom mirror so you see them everyday.

Some Goals Aren’t Yours
Take it from me. When goals aren’t yours you will quickly lose the energy necessary to attain them. Don’t set out to achieve something simply because it seems like the right thing to do. Or because you know it’s what someone else in your life wants. Own your goals. Make them yours.

Goals Are Negative
Sometimes we set goals to stop doing something. While this isn’t a bad thing, be sure not to miss the bigger picture. For example, if your goal is to get out of credit card debt, consider why that’s important. Perhaps you’re charitably inclined and could re-direct the interest savings towards a better cause? If so, declare your goal in a positive manner such as “increase charitable giving.” An action item to achieve the goal would be to eliminate credit card debt (negative).

So how should you create financial goals? Here are some ideas to help you begin:

1. Identify your values. Your financial goals should align with who you are as a person. Your values. What makes you YOU? Sometimes, this takes some reflection. Other times values are pretty easy to identify. Either way, if you don’t know who you are or what you value, you will struggle to develop financial goals that you’re motivated to meet.

2. Think of financial goals as short and long-term. Short-term financial goals are those you hope to achieve in the next 1-3 years. For simplicity sake, consider anything beyond that a long-term financial goal. Why is it important to view financial goals this way? So you may focus your time, energy, and resources.

Some financial goals may feel like a sprint (short) and require you to temporarily adjust your spending (e.g. eat out once per week instead of three times). Others should feel like a marathon (long) that require minor short-term adjustments, but perhaps a bigger commitment to not spend the “extra” cash as your income increases in the future.

3. Write them down AND tell someone. This could be the hardest part. Not because you struggle to identify your values or think of financial goals as short and long-term, but because it’s difficult to communicate financial goals in writing. It’s even more difficult to tell someone what you set out to achieve. Why? Because that person may actually follow up and hold you accountable. If you want to increase the likelihood on meeting a goal, don’t take this step lightly!

4. Stay high-level. Don’t get too specific with the goal itself. As I alluded to earlier in the example of decreasing credit card debt to increase charitable giving, we sometimes try to create action items in lieu of identifying the actual goal. This may cause us to become too narrowly focused, in which case we could miss overlook other avenues to reach a goal.

For example, a recent goal I heard from new parents is “to save for college expenses.” They desired to fund a portion of their kids’ future college expenses and before our conversation even began they had their mind made up that the only way to reach the goal is to save to an investment account. Through our conversations, I learned they both felt uncomfortable having such a large mortgage. As the discussions progressed, we agreed a better goal may simply be “to pay for college expenses.” Notice a subtle change to the language, but a very important one. Once the parents understood they had multiple options to pay for college, they turned their focus to what’s most important in their lives. They realized if they pay off their mortgage before their child begins college they may free up sufficient cashflow to pay for college out of pocket AND reduce their debt.

Setting financial goals is a difficult, but necessary task. Attaining your financial goals is even more difficult. Following the ideas above will get you going, but  always remember to stay flexible as you work to attain the goals. And if you want to get really serious about attaining your financial goals, partner with a financial advisor that understands your values and can help you course correct when things don’t go according to plan.