One of the most important tools in managing your finances is goal-setting. Sounds easy enough, right? But having the wrong goals can lead to frustration and eventual financial disaster. To make matters more confusing, everyone’s financial goals look completely different, ranging in everything from saving for a dream vacation and paying off student loans, to buying a house and having enough money to start your own business. So how do you know if you have the right kinds of goals in place? Here is a guide to setting and sticking to financial goals.
Make SMART Goals
Making your goals too general can make them hard to stick to. Making your goals something like “Save for a vacation” or “Spend less on clothing” are very open-ended and therefore make it difficult to measure your progress. The acronym S.M.A.R.T. stands for Specific, Measurable, Attainable, Relevant, and Time-Limited. This has been used for years as a means of helping people understand how to make and achieve goals. The S.M.A.R.T. system can help you take your goals from “Saving to buy a house” to “Saving $27,000 for a down payment in 3 years by putting away $350 from each paycheck.” And most importantly, write your goals down! This will make it easier to check up on your progress and force you to hold yourself more accountable.
Prioritize
Unfortunately, you may find yourself unable to work towards all of your goals simultaneously. Rank your goals in order of urgency/importance. For example, consider paying off a high interest credit card and building an emergency fund before saving for a vacation. Listing your goals in order of priority can help you make the right decision when tempted to focus on more “fun” goals like saving for a house or new car. Be sure to work your goals into your budget so that you aren’t tempted to spend the money elsewhere. As you achieve some of your shorter term goals, swap in some of your more “fun” goals to work towards.
Be Flexible
While you certainly want to do your best to stick to your budget or plan, it is important to also be flexible. Obsessing over the specifics of your goals is a sure way to get quickly discouraged or overwhelmed. Life is filled with uncertainties and, if once in a while, these uncertainties get in the way of fully working towards your goals, that’s ok! Think of it like your fitness goals – if you can’t attend your usual morning gym class because you have an early doctor’s appointment, you wouldn’t let that stop you from achieving your end goal. You’d either find a way to squeeze in a shorter workout at home or just come to terms with the fact that straying from your routine for one day is ok as long as you get back on track tomorrow. It is important to be able to learn to adjust to life’s unexpected twists and turns without letting guilt compromise your overall efforts.
Reward Yourself
One of the great things about making your goals measurable, is being able to reward yourself when you achieve them. A hugely important part of sticking to financial goals is the ability to remain motivated, and since a vague goal doesn’t necessarily have an end or a “check in” point, it can be hard for you to tell how you’re doing. Many goals have inherent and tangible rewards – like finally being able to take that dream vacation you’ve been saving for. Others – like paying off a high credit card balance – may feel a little more anti-climactic. It is important to reward the effort as well as the accomplishment, so devise a rewards system for yourself – just be sure it doesn’t put too much strain on your finances! Again, think of it like your fitness and health goals. If you restrain yourself from all bad food, there’s a good chance you’ll get fed up quickly. But if you allow yourself a treat at the end of a good week, you’ll likely be more enthusiastic about continuing to work towards your goals. Think about what works for you and what will help you stay motivated.
Understand the Goals Will Change
Your goals will change along the way, and that’s ok! It doesn’t mean you’ve failed. Just like you, your goals will grow and evolve. There will be times where you may need to adjust to new circumstances (like a reduced income), decide certain goals are no longer important to you (like saving for an expensive car), or add new goals along the way (like financially preparing to start a family). Make a plan to re-assess your goals once or twice per year and make adjustments as necessary.
Just like anything in life, the road to financial success is made easier by setting goals to work towards and measure yourself against. Again, these tips may seem straightforward, but I cannot tell you how many people I come across who cannot articulate their financial goals! And without goals, people tend to live paycheck-to-paycheck, using any extra money for lifestyle inflation rather than towards savings. These tips will help you set realistic and attainable goals so that you can move on to the next part – your plan for achieving them!
The post How to Set (and Stick to) Financial Goals appeared first on Entrepreneurs En Vogue.