The road to financial freedom has two lanes. One is the ability to set, and reach, realistic goals. The other is creating and maintaining the habits to enforce and achieve those goals. We have talked about the importance of goal setting in many episodes. Setting goals is an important part of the process of improving our finances. It's so easy to get bogged down in the day-to-day pressures of life. Goals help us think beyond the daily details of life and focus on the big picture. So in this episode, we cover (1) how to set effective goals, and (2) tips on achieving those goals.
How to Set Effective Financial Goals
Consider the Past: Let's look at your history with setting and achieving (or not) financial goals. This self examination can really help you set more effective goals now. By understanding past successes and failures, you can better prepare yourself to achieve financial goals this time.
Find your Motivation: We all find motivation in different ways. What motivates me may not motivate you. One key to successful financial planning is understand what motivates you. By tapping into what drives you, you'll need to set goals tailored specifically to you to increase the likelihood of success.
Be realistically unrealistic: Goals need to push us, but not overwhelm us. Set goals that are too easy and you'll likely never reach your potential. Set goals that are too aggressive and you'll likely get discouraged. For me, the sweet spot can be found with goals that I describe as "realistically unrealistic." Some call it stretch goals.
Make Your Goals Specific and Actionable: Goals need to be specific. A good way to tell if your goals have met this test is to ask how you'll know when you've accomplished your goal. If you can't answer that question, it's time to rethink your goals. In addition, goals should be followed up with an action plan. A good start is to ask what your first step will be to achieve the goal.
You could say that the whole human endeavor is geared towards setting and achieving goals. Goals are part of every aspect of life: how you conduct your relationships, what you want to achieve at work, even the way you use your spare time. Everything comes down to priorities, and what you would like to accomplish in every aspect - whether you make a conscious choice or go with subconscious preferences.
Without setting goals or objectives, life becomes a series of chaotic happenings you don't control. You become the plaything of coincidence. Accomplishments like sending someone to the moon, inventing the iPod, mapping out the grid for the distribution of electricity to the masses are all the result of a goal that was set at some point. A vision that was charted and realized.
What is SMART goal setting?
SMART goal setting brings structure and trackability into your goals and objectives. Instead of vague resolutions, SMART goal setting creates verifiable trajectories towards a certain objective, with clear milestones and an estimation of the goal's attainabililty. Every goal or objective, from intermediary step to overarching objective, can be made S.M.A.R.T. and as such, brought closer to reality.
In corporate life, SMART goal setting is one of the most effective and yet least used tools for achieving goals. Once you've charted to outlines of your project, it's time to set specific intermediary goals. With the SMART checklist, you can evaluate your objectives. SMART goal setting also creates transparency throughout the company. It clarifies the way goals came into existence, and the criteria their realization will conform to.
What does S.M.A.R.T. goal setting stand for?
Why not think of a small goal you want to set right now, personal or professional. To make your goal S.M.A.R.T., it needs to conform to the following criteria: Specific, Measurable, Attainable, Relevant and Timely.
S.M.A.R.T. goal setting: Specific
What exactly do you want to achieve? The more specific your description, the bigger the chance you'll get exactly that. S.M.A.R.T. goal setting clarifies the difference between 'I want to be a millionaire' and 'I want to make $50,000 a month for the next ten years by creating and distributing a new product while maintaining a life of freedom and independence'.
Questions you may ask yourself when setting your goals and objectives are:
What exactly do I want to achieve?
What are the conditions and limitations?
Why exactly do I want to reach this goal? What are possible alternative ways of achieving the same?
The more specific you can be the better. I get out my journal and write "a day in the life of" for each of my goals. I am very descriptive. In include what I am wearing, how I am feeling, who is around me, the smells. I try to include something from every one of my sense.
S.M.A.R.T. goal setting: Measurable
Measurable goals means that you identify exactly what it is you will see, hear and feel when you reach your goal. It means breaking your goal down into measurable elements. You'll need concrete evidence. Being happier is not evidence; not smoking anymore because you adhere to a healthy lifestyle where you eat vegetables twice a day and fat only once a week, is.
Measurable goals can go a long way in refining what exactly it is that you want, too. Defining the physical manifestations of your goal or objective makes it clearer, and easier to reach.
S.M.A.R.T. goal setting: Attainable
Is your goal attainable? That means investigating whether the goal really is acceptable to you. You weigh the effort, time and other costs your goal will take against the profits and the other obligations and priorities you have in life.
If you don't have the time, money or talent to reach a certain goal you'll certainly fail and be miserable. That doesn't mean that you can't take something that seems impossible and make it happen by planning smartly and going for it!
There's nothing wrong with shooting for the stars; if you aim to make your department twice as efficient this year as it was last year with no extra labor involved, how bad is it when you only reach 1.8 times? Not too bad.
S.M.A.R.T. goal setting: Relevant
Is reaching your goal relevant to you? Do you actually want to run a multinational, be famous, have three children and a busy job? You decide for yourself whether you have the personality for it, or your team has the bandwidth.
If you're lacking certain skills, you can plan trainings. If you lack certain resources, you can look for ways of getting them.
The main questions, why do you want to reach this goal? What is the objective behind the goal, and will this goal really achieve that?
You could think that having a bigger team will make it perform better, but will it really? Be sure you are setting the goal for the right reason. More is not always better. If you set a goal to have a 7,500 square foot house with a pool, tennis court and huge yard you will then be trapped by that house. The upkeep and maintenance is very expensive and never- ending. So if you secondary goal is to travel extensively, that house will be a barrier to you being able to leave for a month or two to explore new places.
S.M.A.R.T. goal setting: Timely
Time is money! Make a tentative plan of everything you do. Everybody knows that deadlines are what makes most people switch to action. So install deadlines, for yourself and your team, and go after them. Keep the timeline realistic and flexible, that way you can keep morale high. Being too stringent on the timely aspect of your goal setting can have the perverse effect of making the learning path of achieving your goals and objectives into a hellish race against time - which is most likely not how you want to achieve anything.
Another thing that's very important when setting SMART goals, is formulating it POSITIVELY. Remember that what you focus on, increases. So when you focus on NOT doing something, all you think about is that thing. And it will increase. So don't 'stop procrastinating', but 'achieve a daily discipline'.
How to Achieve Your Goals
Personalize your goal: We discuss how to tailor goals to your specific circumstances. While many people share common goals (e.g., investing for retirement, getting out of credit card debt), what one must do to accomplish those goals is often very specific to their circumstances.
For example, you might have a list of several debts. Instead of having the financial goal of "paying off debt" this year, you can be very specific to say, "We will pay off the Visa by November 30th by paying $200 extra on it each month."
Take some time and determine what your long-term dreams are; do this with your spouse if you are married. Determining those long- term dreams will help you determine what your short-term goals need to be.
Automate: By automating aspects of your financial live, you increase the chances of success. You also simplify your life. We have discussed many ways to incorporate automation into your financial goals. You can get an app to manage your finances and help you with your budgeting. My three favorite apps for this are:
You need a budget
Set interim goals: My goals for getting out of debt were first to pay off credit card debt, then school loans, then car loans and now my mortgage. I used SMART goal setting to make a timeline and created measurable action steps to pay off every single debt I had.
Credit cards were the most expensive debt. I wanted them paid off quickly. First step was to stop using them so the balance did not grow. Second step was to add up all my credit card debt and commit to a specific time they would be paid off. I picked 9 months.
So I took the total debt of $36,000 and divided it by 9. That told me I had to pay $4,000 each month over and above the interest to get to $0 at the end. I took that number and divided it by 4 to get a weekly amount of $1,000. I sent in a payment every week and paid the interest separately when the bill came in.
I did a combination of reducing my other spending and making additional income to come up with an additional $1,000 a week to pay off my debt. When my credit cards we paid off I did the same exercise for each of my other debts.
Track your progress: Tracking your progress toward a goal is important for two reasons. First, it can be motivational as you see yourself getting closer and closer to your goal. Second, it keeps you focused on your goal. And if you are finding it difficult to figure out how to track your goal, reconsider whether the goal is specific and actionable.
With my credit card example I kept a hand written sheet showing the balance on each card each week. I would go online on Sunday's and look at the balance of each card. It was so motivating to see that number decline so quickly.
Get help: Particularly with financial goals, having somebody you trust encourage you and hold you accountable is critical for most. Getting help allowed me to reach a very important goal in my life. But make sure you go to somebody reputable that is not expensive. The last thing you want to do is spend all the money you could use to reduce your debt or save for retirement on a financial coach
Develop good habits: Aristotle said "We are what we repeatedly do. Excellence, then, is not an act, but a habit." The most important thing financial goals can do is to help you start and maintain good habits.
Let’s set some goals this week and move down the path to financial freedom!
Until next week!
Join me every Wednesday on my podcast “Unlocking the Secret to Living Rich”. If you have questions or comments you can contact me at my email firstname.lastname@example.org or find me on Facebook, Twitter or Instagram @cindybbrown777
Who is Cindy B. Brown? Cindy is a CPA, MBA, CFO, mastermind facilitator and board member of public and private companies, business consultant, entrepreneur coach and a foremost expert in the field of business mastery. Cindy’s purpose is to motivate, educate and inspire people to live their richest life. She is the host of “Unlocking the Secret to Living Rich”.