How to Set Strong Financial Goals
By Daniel Rodriguez | Dr. Budgets
Happy New Year! For many, the new year represents a fresh start and a time to create goals or resolutions for the year. If you have financial goals for the year in mind, then I hope this post gives you tips on strengthening your financial goals so that you are motivated to accomplish them.
I love talking with my clients about their financial goals! It’s important to identify what really matters to them, so establishing strong financial goals is one of the first things I do when I start working with clients. It becomes even more critical when I become their money coach. But identifying which financial goals you want to achieve can be difficult, and setting financial goals can, honestly, sometimes be boring. The trick is to identify something you really want so you can get excited about it! Here’s how you do it…
Think about your life. What do you like? What would you like to change? How do you imagine your life in 5 years? 10 years? 25 years? It’s okay if these answers are general – they can help identify what matters to you – so pay attention to what excites you! Once you have the big picture, identify the smaller, specific goals that you need to achieve to create your imagined future.
Determine where finances fit in. Which parts of your ideal life are rooted in money? Try to be honest with yourself here because the adage “money doesn’t buy happiness” is absolutely true. You don’t need money to fall in love, get healthy or be happy; but you do need money to buy a house, get out of debt or grow your savings. You could (and should!) create goals to accomplish things in other areas of your life, but since we’re talking about financial goals here, it’s important to know which goals fall in your financial house.
Work backward. Work backward to identify what your first goal should be and start there. If your primary goal is to buy a house, then the first step could be to open a savings account, and your first goal could be to save a certain amount of money for the down payment. An important note here: if you have credit card debt, consider setting a goal to pay off your debt – especially if your interest rates are higher than 10%. If you resolve to pay off debt, start with the credit card that has the highest interest rate. If multiple cards have a similar rate, start with the card with the lowest balance.
Make your goals SMART. Goals that include the components of SMART goals (Specific, Measurable, Attainable, Relevant, Time-Specific) are much more likely to be achieved. An example of a SMART goal with all the components is “I want to have $18,000 in my savings account for a house down payment by December 31, 2017.” You can then determine how much you need to save each month ($500) to reach your goal. If you feel that you can realistically attain this goal, then you have yourself a SMART goal!
Get excited! Start thinking about what accomplishing this goal really means to you. Paying off credit card debt might seem unexciting to some people, but if you imagine what it means to be free of credit card debt (not dreading paying the minimums each month, never having your card declined, the financial burden lifted) you’ll be motivated!
Consult an expert. If you’re still not sure where to start, don’t get discouraged! Money matters don’t come easily to everyone, so you may want to consult an expert. The reason why I started Dr. Budgets is to help people who don’t want to do it themselves. If you want to talk to an expert, contact us today!
Create a spending plan. Now that you’re excited about your goals, it’s a good time to look at your spending to determine what changes need to be made to achieve your goals. Create a spending plan (budget) where you keep spending money on what is important to you, but cut out spending on things that aren’t important – spending that hurts your progress toward achieving your financial goals. Look at each area of your spending and ask yourself “Is this where I really want to spend my money?” This question is a lot easier to answer when you have strong financial goals!
Track your progress. It is important to acknowledge the progress you make toward your goals so that you stay motivated to succeed. When working with my clients as their money coach, this is the first area we look at each month. We start with the big picture to avoid getting lost in the details.
Here are some goals that might help get you started:
– Get out of credit card debt
– Buy a house
– Save enough for your dream vacation
– Have a fully funded emergency savings account
– Have enough money saved to start a business
– Buy a car (without a loan)
So there you have my steps to setting strong financial goals. I help my clients create and achieve financial goals because they want to change something in their lives. Change can be difficult, but if your financial goals are SMART and represent what you truly want in life, then there is no reason why you can’t achieve them. I’ve seen my clients accomplish great things!
In response to feedback that our blog posts are especially helpful to our clients, we’re excited to announce that we will be increasing the number of blog posts this year. So click here for more on strong financial goals!