If you’re like the rest of us, you’ve probably made New Year’s resolutions before only to break them shortly thereafter. So you might think that financial goal setting isn’t worth your time or energy. But, trust us, this is different. Done right, financial goals will keep you motivated, accountable, and in pursuit of what you’re trying to achieve.
This article will explain why you should set financial goals, describe what SMART goals are, and walk you through an easy four-step process to establish goals. Continue reading to learn more.
Why Should You Set Financial Goals?
There are several reasons why it’s a good idea to create financial goals. Let’s go through some of them together:
- Goals will keep you motivated – It’s easy to lose steam if you aren’t clear about what you’re trying to accomplish. On the flip side, if you establish meaningful and realistic goals, you’ll likely feel motivated to reach them.
- Goals will give you direction – Without goals, you’ll just go around in aimless circles. If you want to stay pointed in the right direction and focused over time, set goals and continually monitor your progress toward reaching them.
- Goals will make you accountable – You probably won’t save as much as you’d hoped, for example, if you don’t set a goal with action steps that hold you accountable. Tracking your progress will keep you honest.
- Goals will give you a sense of accomplishment – Rewarding yourself at certain milestones is key. If you celebrate these smaller achievements, it’ll boost your motivation and help carry you toward your big end goal.
A Simple 4-Step Process to Set Financial Goals
Given all the benefits of putting financial goals in place, you might wonder how to create ones that won’t end up like your old broken New Year’s resolutions. Fortunately, it’s easy to establish financial goals that will work for you. Follow these four steps:
Step 1: Record your goals – Yes, that means writing them down or typing them into a Note on your phone or someplace on your computer. Make them official.
Step 2: Make your goals SMART – This step is crucial to your success. Without following the SMART framework, your goals may very well end up being too broad, too ambiguous, or too unrealistic. So make sure that you create financial goals that are:
- Specific – clearly define your goals
- Measurable – frame them so you know when they’ve been achieved
- Achievable – ensure they can be broken down into practical action steps
- Realistic – be sure that it’s actually feasible for you to accomplish the goals
- Time-Bound – give yourself deadlines; don’t leave your goals open-ended
Here’s an example of a SMART financial goal: Joe sets a goal of investing $5,000 in a specific mutual fund by December 31st, 2024. This goal is SMART because it’s:
- Specific – He knows exactly how much he plans to invest and by when.
- Measurable – He breaks down his investing goal to $417 a month and can easily monitor this to celebrate monthly wins or see if he’s getting behind.
- Achievable – His action steps include investing $417 a month in a specific mutual fund.
- Realistic – He previously looked at his budget to ensure he could invest this amount.
- Time-bound – He sets monthly deadlines, in addition to knowing that he wants to have the full amount invested by December 31st, 2024.
Step 3: Break down your goals into actionable steps – You’ve likely heard it before, but we’ll say it again: to accomplish a big goal, break it down into smaller, more manageable pieces. In Joe’s case, he plans to implement these action steps:
- Earmark and save $417 every month to invest.
- At the end of each month, buy $417 worth of shares in the desired mutual fund.
Step 4: Monitor your progress – Finally, it’s important to review your goals on a regular basis, track your progress, and celebrate your milestone wins.
If you want to make headway financially, it’s a great idea to establish some SMART goals. Doing so will give you a stronger sense of purpose, motivation, and accountability. If you’re unsure what goals are best for your situation, reach out to a trusted financial advisor who can assist you with creating and reaching all your financial goals.