Setting goals is as simple as deciding what you want and mapping out a plan for getting it. Many people focus on their immediate wants and needs at the expense of their short- and long-term goals. Current expenses have a way of expanding to use all your available money, making future planning and saving seem impossible, but they’re not.
By focusing on your budget, spending less money than you’re bringing in, and keeping a closer watch on credit spending, you’ll be able to save, invest, and get ahead.
1. Choose A Financial Goal
Think seriously about what you want to achieve. What’s important to you? Do you envision retiring while you’re still young enough to enjoy travel or an active lifestyle? Would you like to buy your first home or move up to a larger home in a better neighborhood?
In the shorter term, maybe a new car or a boat is on your wish list. If your short-term liabilities (due in a year or less) are greater than your current assets (cash and assets like stocks that can be quickly turned into cash), paying down credit card debt makes a smart first priority.
Don’t choose goals just because they sound like what you should want. Ask yourself whether the goals you’re setting are worth sacrificing some spending now for the future enjoyment of having what will be really meaningful to you later.
Don’t let fear of failure cause you to set goals that aren’t ambitious enough. You want to stretch yourself a little to reach your goal, but it has to be achievable, or you won’t stay motivated for long. Try to strike a balance.
2. Put It In Writing
Whatever your goal, simply dreaming about it won’t make it happen. A goal should be written down and reviewed regularly. Written goals give you something to work toward and make your efforts to save more meaningful. Figuring out how to achieve your goals is just as important as stating them. When you put a goal in writing, include the following:
- A description of the goal
- The time frame for achieving it
- The amount of money needed
- The amount already saved
- Your plan for achieving the goal (for example, putting aside $100 a month, working ten hours of overtime a week, cutting entertainment costs in half, or getting a second job)
Having a deadline for achieving your goal creates a sense of urgency that makes it easier to stay focused. Write down your goals in enough detail to give yourself a visual each time you read them. If you’re saving to buy a house, don’t just write down “buy our own house.” Include details so you can almost see it: “I want to buy a cozy Cape-style home with a water view on two or more wooded acres on the coast of Maine.” Each time you think of this goal, picture this cozy home in your mind. The more vividly you can imagine what your goal will look like and feel like, the better chance you have of achieving it.
3. Break It Down
At first, what you may have are long-term goals (goals you expect to meet in five years or more). You can break these goals down into short-term goals (one year or less), making it easier to stay focused on the future and giving you a sense of accomplishment and satisfaction along the way.
In some cases, you may also want to identify a medium-term goal (one to three years). Remember to make the goals specific. Ask yourself how you’ll know when you’ve reached each of your goals. If you can come up with a concrete, measurable answer, you’re on the right track.
After you’ve written down as many goals as you can think of, choose one or two short-term and one or two long-term goals to work on this year. Let’s say you choose to build a retirement fund as one of your most important long-term goals. To break it down into short-term goals, set a monthly goal to contribute a set dollar amount to your employer’s 401(k) or other retirement plans.
Most people struggle with the question of whether to use available funds to pay down long-term debt, such as making extra principal payments on a mortgage or to use the money for short-term goals, such as building an emergency fund. The best choice is to figure out which has a higher priority.
This takes thoughtful consideration of your current financial situation, your short- and long-term goals, and the flexibility to make adjustments in your plans as your goals and your financial situation change.
4. Recalculate your net worth
You should recalculate your net worth at least annually, but more frequently is even better. For most people, it only takes a few minutes to update the information once you’ve generated your first statement.
Go over your updated net worth statement, and if you’re part of a couple, talk with your spouse or significant other about how much you’ve accomplished and where you’ve fallen short. If you’re single, you’ll do this on your own, unless you want to involve someone else like a close friend or financial mentor.
If you’re not making satisfactory progress on a particular goal, reevaluate your approach and think about what would help you get on track. If you’re making steady progress, seeing it in black and white can be motivating and rewarding.
Give yourself credit for what you’ve achieved so far. From time to time you may find that your goals have changed, and that’s okay. A good financial plan is flexible and changes with your needs. If you lose interest in a goal, don’t consider it a failure. There’s no reward in working for something you don’t really want. Make the necessary changes in your goals and move on.
It can be a tremendous help to engage the assistance of others. Talk to people who have achieved a goal similar to the one you’re working on. You can gain from their experience and insight, and seeing their success can help keep you motivated.
If you find yourself falling short of your goals because you don’t feel motivated enough to stick with your plan, make a list of everything you’ll gain once you’ve succeeded in achieving your goal, and remind yourself often.
Don’t underestimate the power of your subconscious to help you stay motivated. Put positive thoughts in your mind about your goals, and they’ll be easier to attain.
5. Educating Yourself About Money
Unfortunately, people don’t always learn the basics of personal finance from their parents, and the current education system doesn’t adequately teach them either. In fact, the Jump$tart Coalition for Personal Financial Literacy, whose mission is to improve the financial literacy of young adults, says that the average high school graduate lacks fundamental money management skills and a basic understanding of earning, spending, and saving money.
It’s no wonder that most people make financial mistakes in their twenties and thirties that they pay for over the next decade or longer. You can avoid these mistakes by educating yourself about basic money matters and practicing good money management.
Where do you start? Books like this are one source of reliable information. Check your local bookstore or surf an online bookstore such as Amazon, searching for keywords like “personal finance” or “money management.” Financial magazines, such as SmartMoney, Barron’s, Money, and Kiplinger’s Personal Finance, are other great source.
Some of them are geared toward avid investors or those interested in business financial news, so try several different ones to see if any of them are relatable. If you find one you connect with, consider subscribing to it.
The Internet is a source of nearly limitless information. Try to stick with well-known sites such as NerdWallet, Kiplinger, and Investopedia rather than the “this is how I did it” personal sites.
Although the latter can have useful information, these sites can steer you in the wrong direction with some questionable advice or information. On the other hand, the personal sites about frugal living, downsizing, and cutting costs can be great for giving you ideas on how to do the same.