7 tips for setting crushable financial goals
1. First, prepare a budget
I know... not what you want to hear. But this step really is crucial.
There are two components that make up the foundation of any good financial plan: a budget and goals. Contrary to popular belief, a budget is not necessarily a restriction on spending. It is simply a plan for where your income is going to go. It directs every penny of your take-home income to either planned expenses, emergency fund savings, or saving for financial goals. When done properly, a lot of work and reflection goes into preparing a budget. But even so, it can sometimes be hard to stick with the plan. That’s where goals come in. They provide the motivation needed to stick to the budget. But it goes both ways; you can’t set realistic financial goals if you don’t know how much room you have in your budget to save toward them.
2. Identify what’s most important to you right now
If your goals are going to motivate you every day, they need to be based on what's truly important to you where you are in your life right now. This requires you to get honest with yourself. For example, your core values might say that helping family members or donating to charity are important to you. But right now there might be other things that take precedence, and that’s okay.
Take the time to search your soul to figure out what you really need to focus on at this time, because no matter how much you might want to make something else a priority, working toward something that isn’t in line with your immediate needs will feel fruitless and you’ll find yourself wandering off track. For many people, especially those who have become overwhelmed by debt, immediate financial security is the most important thing to strive for right now. This may mean that setting up an emergency fund, paying down debt, or saving for a need like a house repair or dental procedure is the highest priority.
3. Keep the list small
We all have a million things we’d like to do that involve money. A long bucket list can be fun to dream about, but your financial plan needs to be laser-focused on what’s relevant to your life right now and achievable within a short-to-medium time frame if it’s going to keep you motivated to stay on track. All those other things you want to do can stay on a bucket list, to be developed into financial goals when the appropriate time comes.
Until then, you’ll find it easier to stay focused if you keep just 2 or 3 financial goals. If you’ve followed point #2, these goals will be highly relevant to your current situation so that they're important to accomplish before you can turn your attention to other the other goals you want to reach.
4. Dial in on exactly what you want to achieve
This is not the time to be vague. You want to celebrate achieving these goals as soon as possible, so you need to know when you’ve done that. If your goal is something like “save money for emergencies”, you’ll never be able to celebrate because it will never feel like you’ve saved enough. Or, you’ll call it “done” when you’re bored and want to move on, even though you know deep down you haven’t saved enough.
Take the time to figure out exactly what success would look like. Put a dollar amount on it, or some other specific accomplishment. For example, if your goal is to get started on saving for your kids’ college fund, a steps-based goal could be “set up an RESP account, apply for government matching, and set up an automatic contribution from my paycheck". Alternatively, a dollar-based goal could be "save $5,000 in the kids' RESP account". Either way, by being specific you can check that goal off as done, celebrate, and then focus on your next goal.
5. Give yourself a timeline to achieve the goal
A timeline helps you to know if you’re on track, and gives you a sense of when you can expect to move on to the next goal. A deadline can be very motivating, but don’t let it be a source of unnecessary stress. The timeline should be realistic, based on a calculation of how long it will take you to get there if you follow the steps to achieve the goal as planned. This should tie in to your budget. For example, if your budget allows you to save $500 per month toward the financial goal, it should take you 10 months to save toward a goal set at $5,000. But things happen; life changes unexpectedly sometimes. If a goal is still important to you, you shouldn’t toss it out just because you can’t meet the goal within the planned timeline. Your goals are yours, so you have the power to adjust them any time to reflect a more realistic timeline.
The timeline also shouldn’t be too long. If you have a big goal that will take a long time to achieve, try breaking it into smaller chunks. For example, if you’re in your twenties and you want to save $1 million for retirement, that’s a great objective to keep in mind. But if you were to set a detailed financial goal around that right now there are too many things that could happen over the next 30-40 years to make the plan irrelevant. The financial goal you’re working toward right now should be something you can see progress on right away, something that will help you achieve that long-term objective but give you a chance to feel success along the way. It could be a set of steps to take, like setting up an RRSP and finding a good financial advisor to help you direct your savings to investments. Or it could be to save a certain amount by the time you hit age 30, so that it can multiply (due to compound returns) even if after that you have to suspend or reduce your contributions while you focus on other goals.
6. Identify the sweet spot
The sweet spot in financial goal setting is a goal that is challenging but realistic. If you make it too easy to achieve the goal, it won’t motivate you. For example, if you could achieve a goal within 6 months but you allow yourself a year, you’re more likely to procrastinate and then the year sneaks up on you and… oops… you haven’t achieved it. It also tends to result in wasted money. For example, if your carefully crafted budget allows you to save $100 per month toward your goal but you would only have to save $50 per month to achieve the goal within the timeframe you’ve given yourself, you will most likely only save $50 per month and spend the rest on something that wasn’t in your budget. Don’t let yourself off the hook like that.
On the other hand, if you make a goal impossible to achieve you’re likely to give up on the goal entirely rather than just achieve it later than planned. This often happens when someone hasn’t done the math on what they’d need to save each month toward the goal, or they haven’t prepared a budget to determine what they can realistically save each month (see point #1). When we work with people on their goals (after we’ve worked hard to prepare a realistic budget) they’re sometimes shocked by how long it will take to achieve their goal. In that case, we talk about whether the goal is realistic and, if not, we adjust it. But if the goal is really important to them to achieve within a shorter timeframe, they will go back to their budget and find a way to save more money (either by spending less or earning more).
7. Don’t forget to celebrate
When you reach a goal, you deserve to celebrate, even if you achieved the goal within a revised timeline. Identify in advance what celebrating looks like and make sure you follow through. (As long as it's not something that will derail your future financial goals or other personal goals).
There will be times when budgeting and financial planning won’t feel fun, so this is your chance to make it all worthwhile. And when you’re done celebrating, you’ll feel even more excited to set down a new goal to work toward.
Now, go crush those goals
As you can see, viable and motivating financial goals are inseparable from a realistic and thoughtful budget. If you take the time to prepare both this year, and follow the above tips, you’ll be smashing those goals in no time. And when you cross one off the list, you’ll know exactly what to do to start a new crushable goal.
Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee serving the southern Alberta region, providing bankruptcy and Consumer Proposal services. Contact us for a free consulation.
