It’s the time of the year that everyone starts talking about New Year’s resolutions. Common resolutions are to lose weight, eat healthier or start doing something nice. Although less common, financial goals or resolutions are also important. Developing financial goals is a big part of figuring out your ‘why’ of personal finance. Goals also serve as actionable steps towards your dreams. Good goals should be specific, significant, challenging, but still realistic.
Make your goals specific enough to be measurable. Attach a dollar figure and a due date. Otherwise you’ll keep kicking your goal down the road or settle with less than your full potential. For example, rather than aim to increase your savings, pledge to save $2,000 towards a down payment by the end of the year. Or to have a $20,000 down payment in 6 years. Otherwise in 6 years you might find yourself trying to put 20% down on a house with $500.
Make your goals significant enough to matter. Deciding to save up all your pennies for the year might sound fun, and isn’t a terrible idea, but it’s not going to amount to life changing savings. Cutting out your morning Starbucks run, on the other hand, can save you $600/year.
Setting challenging goals is similar to setting significant goals. If your goal isn’t challenging, there isn’t much point to setting it. Your goals should prompt you to go above and beyond ‘normal’. They should push you to do far more than you would have otherwise done. If you have 12 years left on your mortgage, paying it off 11 years from now is not very challenging. Having it paid off in 7 years is.
While you want your goals to be challenging, you don’t want them to be so impossible that you end up abandoning them in February along with the majority of other New Year’s resolutions. Keep your time frame and income in mind, You aren’t going to go from rags to riches in a year. You’re also not going to be able to stash away $100,000 in 5 years on a $25,000 annual income.
This year, I challenge you to set 3 specific financial related goals for yourself: one near term goal, one intermediate goal, and one long-term goal.
Near Term Goal- 1 Year Target
Make your near term goal something that you’d like to accomplish by the end of the year. Your goal can either be an accomplishment in itself, or a significant step towards something bigger.
Evaluate your current financial situation. Look for areas that could use immediate improvement. If you don’t have an adequate emergency fund, having $1,000 in emergency cash would be a perfect near term goal. Other good goals might be maxing out your Roth IRA contributions ($5,500 for most people) or paying off a credit card.
Intermediate Goal- 5 to 10 Year Target
Your intermediate goal is something that you’d like to have accomplished within 5-10 years. Don’t leave the time frame this vague, however. Pick a specific goal date within this time frame that you’d like to have your goal met. Since the time frame for your intermediate goal is longer than your one year goal, the size of your goal should also be larger. Where saving $1,000 might be a perfect goal for your one year goal, it would be paltry for a 10 year goal.
Again, make your goals personal and relevant to your situation, goals and dreams. Perhaps you want to be debt free in 5 years. Or if you have a side hustle, you could set an income goal for 7 years from now. You can accomplish a lot in 5 or 10 years, so pick a goal that will significantly change or improve your life or finances.
Long Term Goal- 20 to 30 Year Target
20 to 30 years is a long time- roughly a third of your life. Think about where you want to be in 20 years and what it will take financially to get you there. A bold goal for a younger millennial might be retiring (whatever that means) in 25 years. Or perhaps your goal is more career oriented- achieving a certain position or fully developing a business.
Set Yourself Up for Success
Once you have your goals set, take action towards your goals. Set yourself up for success. Don’t put this off. This is especially important for the long-term goals. Although these goals seem a long way away, starting now is the only way to keep them realistic. If you don’t take action now, inertia will keep you from ever taking action. Figure out what you have to do each month and each year to reach your goals and make as many of your steps automatic.
Remember Your Goals
Once you set your goals, you don’t want to promptly forget about them. Write them down. Keep them somewhere you’ll regularly see them. Perhaps this means creating a recurring reminder in your digital calendar. You could put them on your desktop background. Just find something that will remind you over the course of the next year, the next 5-10 years, and the next 20-30 years.
Keep Yourself Accountable
Finally, make sure you strive to achieve your goals. Of course your goals are not set in stone. If your life changes in such a way that your goals are no longer relevant or practical, you should alter your goals. And if you do fall short of your goals, it’s not the end of the world. The progress you make towards your goals is likely far more progress than you would have made had your goals not been in place.
One of the best ways to stay accountable is by making your goals public. Share them with somebody who knows you well enough to bug you about them. If you are married, you should definitely share them with your spouse- actually you should have set your goals together with your spouse. If you feel so inclined, share it on social media and ask your friends to keep you accountable.
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- While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.