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5 Steps to Effective Financial Goal Setting

Have you ever set a financial goal for yourself with the best of intentions, only to find yourself derailed after a few months? If so, you're not alone. Just look at how many people start the New Year off with a brand new gym membership, only to stop going after a few months.

There are no shortcuts in goal setting, so much so for your finances. Skipping a step is like going for a crash diet; unsustainable and unhealthy. Without a clear direction and enough motivation, you’ll end up yielding to last minute expenses and sacrificing your savings for short-term plans, or shelling out for wasteful spends.

Even if there’s no shortcut, we can simplify the process for you! 

Find Out Your Whys

Now it's time for the real work. When it comes to identifying your financial goals, leave no stone unturned in every area of life. What does your dream life look like, and how similar is it to the life you lead now? Where are the disparities? Most importantly, are you and your life aligned with your current financial goals? And if not, what do you need to do to close the gap?

The importance of getting clear about the kind of life you want to live and writing it down is two-fold. First, you'll have a written record of what you want to do rather than have ideas floating around in your head. Again, this seems like a simple tactic, but it makes a difference to see your goals in writing in the physical world. Once they're down on paper, you can start to examine which parts of your life match, which ones don't, and start to close the gap. The second reason is that having something to hang onto is important when the going gets tough. Life happens, and without fail there will be some speed bumps along the way. Writing down your goals can keep you focused when the road gets rocky.

Once you’ve listed your goals, the next step is to break them down into short-term and long-term goals. Doing so, will help you set your timeline and get your strategies and budgeting in line.

Generally, anything you’re set to achieve with three years are short-term goals. This may include reducing or paying out your debts, setting up an emergency fund, and buying a car.

Beyond that time-frame are your long-term goals which, when achieved, sets you up for a lifetime of comfort and financial stability. These are targets you set for your retirement, dream home, or for your children’s education, among others.

Why is it important to identify a time frame for your goals? If your goal is to have $10 million saved in your retirement account by the time you're 65, it can be hard to stay motivated for a goal that feels so far away. By having a mix of short and long-term goals you'll be able to build up successes to keep focused for the goals that will take a little longer.

Set Smart Goals

Now that you have your goals and dreams written down, it's time to figure out how to make them a reality. Sometimes this is an easy thing to do, like canceling a subscription you no longer use, or calculating how much it will cost to spend two weeks in Bali.

One of the easiest ways to turn your goals from dreams to reality is to use the SMART goal method. SMART is an acronym that stands for Specific, Measurable, Achievable, Relevant, and Time-Bound. By applying this metric to each of the goals you've defined above, you can create a simple plan for each one.

Let's use the example of saving for a trip to Bali. A few actions that you can take is to find the best time of year to travel to Bali, research the costs of flights and accommodations, and decide what activities you want to do when you're there. But that doesn't necessarily mean that you have an actionable plan to make this happen. Here's how we can apply the SMART method:

  • Specific: I want to save for my dream vacation in Bali. I have estimated this trip will cost $5,000.
  • Measurable: Broken down, this means that I need to save roughly $97 per week or $388 per month.
  • Achievable: My current budget has $1,000 of disposable income per month, which allows me to set aside the required funds.
  • Relevant: Based on my income and expenses for the past year, this should be achievable.
  • Time-Bound: I want to achieve this goal within the next year.

Now that you have identified a SMART goal, it's time to get started. Make it as easy as possible to save by setting up automatic transfers to a special savings account that you know you won't dip into when a sale at Nordstrom tempts you. Track your progress, celebrate your wins, and know that a year from now, when you're lounging on a pristine beach, you'll have proof that you can set and achieve your financial goals.

Whether it's paying off debt, saving for retirement, funding education or your dream trip, setting SMART financial goals will help you build the life you've always wanted.

Create Separate Accounts For Your Goals

It’s easy to get your funds muddled when you don’t compartmentalize. Set up and designate a savings account for each of your goals so you can better keep track of the funds that are going in for each.

While you’re at it, arrange monthly electronic transfers for each account so that your money goes straight to your goals once you get your hands on it.

Regularly Review Your Progress

Blindly working for your plans, without monitoring your progress, will tire you out and may sometimes be the cause of your frugal fatigue. There’s nothing more motivating than knowing that you’re getting somewhere, and that the compromises and sacrifices you’ve made weren’t all for naught because you are getting closer to your goals.

In addition, a regular review will help you answer the following questions:

  • Are my strategies working?
  • Am I right on schedule?
  • Do I need to recalibrate my plans or adjust fund allocations for each goal?

When doing your review, don’t just look at progress as written in your accounts, but also your current situation. Are you having a fulfilling life while staying on track with your goals?

You should ensure that you’re not making progress at the expense of the quality of life you’re presently living. Once you feel the dread of financial planning, it doesn’t matter how close you are to achieving your goal, you’re already setting yourself up for failure. 

Your present is as important as your future and balancing both will propel you further into your goals without limiting your current opportunities. Yes, you can live comfortably now and still achieve your financial goals. If you find it hard to believe, reach out to me or a financial advisor you trust and you’re in for a surprise.

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The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your financial advisor, attorney, or tax advisor.  For additional information and disclosures, please visit our website at mbewealth.com.  MBE Wealth Management, LLC is a registered investment advisor.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.