When is the last time you set a goal—be it for your spiritual life, professional life, family life, social life, physical or mental health, or any other areas? Has it been more than a week? More than a month? Hopefully not, but has it been more than a year? If so, it’s time to dust off goal setting and try again. My aim in this article is to provide a few pointers to help you through the process of financial goal-setting and to illustrate how it’s beneficial to your future.
Where Do I Start?
- Brainstorm: If you don’t have any ideas, the best first step is to brainstorm. There are many ways to be productive in brainstorming. Some folks like to simply think about different alternatives, others like to narrate ideas; still others prefer to write them down. The important part is to start generating thoughts (and lots of them—the more, the better), whether they’re in your head, floating in the breeze, or written on a piece of scratch paper. Try to come up with 10 ideas related to your personal financial situation. At this point in the exercise, nothing is a “bad” idea or off-limits; additionally, the ideas can be as abstract or concrete as you wish as long as you understand what they mean.
- Connect: The next step is to pick some ideas you identify with. Which ones would you be passionate about accomplishing? Which ones put you outside your comfort zone? Which ones would drive you further toward success? Which ones make the most sense at this stage in your financial life? Pick a handful of the ideas you really relate to, whatever the reason may be.
- Specify: Once you’ve chosen some ideas, begin to add details to them because specificity is of the utmost importance in this process. Maybe you wrote down “Become debt-free by 2022.” A better and more specific way to express that is: “From September 2020 until December 2021, put $400 per month toward paying off the $6,400 combined credit card debt on two separate cards (VISA and MasterCard).” Doesn’t that second statement provide so much more direction, magnitude, and clarity behind the idea? Or even better than that: “From September 2020 until December 2021, put $300 per month toward paying off the $4,800 balance on the VISA and $100 per month toward paying off the $1,600 balance on the MasterCard.” That last one lays out the exact plan required to become debt-free at a future point in time, right down to the monthly payment you intend to make toward the debt on each card.
- Refine: Determine if you can measure progress toward and eventual completion of your ideas. If it is not actionable and measurable, how will you know once it’s been achieved? If there are ones that are still a little cloudy, add more detail or consider scratching them from the list.
- Document: After you’ve provided as much detail as possible for your ideas, document them in writing. This doesn’t have to be on a physical piece of paper but should be documented somewhere you can get to quickly and on-demand (i.e. a spreadsheet or word processing document). You can list them in any order you wish—however is most meaningful to you, whether it’s chronological by completion date, most to least important, highest to lowest effort required, etc.
- Complete: You now have a completed list of goals; congratulations!
Before we move on, notice in steps 1 through 5, I never once called these items goals; that was by design. In my opinion, ideas do not become goals until they are meaningful, actionable, specific, measurable, and documented. Up to that point, they are merely wishes.
The good news is the foundation has been laid at this point in the process. You know your goals, you know your plan to accomplish them, and you know the timeframe for completion. Now it’s time to execute!
- Timing: Develop a cadence to review your goals. Should you review them daily, weekly, or monthly? If timing isn’t as important, are there certain triggering events that would cause you to review progress toward the goals? For example, should you review your goal every time you make a payment toward your student loan—whatever frequency that might happen? Also, ensure the timing is adequate so as not to neglect your goals; if you wait too long between reviews, you could lose focus or momentum toward completing them.
- Accountability: Truly and earnestly hold yourself accountable for your progress (or lack thereof) toward then goals. Using the example in the section above, if your goal was to put $400 per month toward repaying credit card debt but you’ve only put $200 per month toward that goal for the last six months, it’s time to catch up. Exceptions can be made in this step for unforeseen or uncontrollable events like a job loss, death of a family member, health complications, etc. See the next two steps for further guidance on how to proceed.
- Assess: Are your goals still appropriate? Do they still make sense in relation to the financial landscape of your life? Are they still relevant to where you plan to be at the time you plan to be there?
- Adapt: If your answers to question 3 are “no”, then it’s time to adapt. This step can take many forms. Maybe you should alter the goal(s) to better reflect your current circumstances or scrap one or multiple goals as you now have more relevant goals or higher priorities. Perhaps you determine you need to postpone the goals or extend the time frame rather than eliminating the goals altogether. The choice is yours to make based on current factors. And please don’t misunderstand this step; it is not meant to give you a mulligan for lack of progress. Rather its purpose is to provide a change in direction if your life has changed in a major way.
What If I Fail?
Valid question—and the answer is to try again. If you review progress against your goals and conclude you’ve met none, do not be discouraged! Give it an honest assessment. Have you made ANY progress? If so, focus and capitalize on that success; if not, determine the root cause. Did you fail because of lack of effort? Or was it because the goal was unrealistic in the first place? Maybe your financial priorities took an unexpected turn that caused you to miss one of your goals? All of these are valid reasons and occur on a regular basis. What’s most important is how you respond to them.
How We Set Goals
In the Sow a Dime & Reap a Dollar household, we embrace the personal finance goal-setting methodology. In fact, I’d go so far as to say it’s been one of the most important tools in our pursuit of financial independence. So how do we set goals? It should come as no surprise that we follow the framework above, but let me provide a little more detail on our method.
In 2015, my wife and I embarked on our journey to financial freedom. As part of that process, we started setting financial goals. Looking five years into the past, our initial approach was unrefined and, quite frankly, counterproductive. We had 14 goals for 2015, some of which were unreasonable from the outset, others were not specific enough; still others were overlapping, and that left us lost as to how to most effectively prioritize goals in relation to each other. We thought those goals were all reasonable and achievable in the time frames established. Wow, were we wrong! Like many other things in life, don’t get too focused on the number–quality of the goals is more important than quantity.
Fast forward to 2020. We have three highly-specific goals for the year that we review quarterly, at a minimum. When we have shorter-term goals (or more than three goals), we review progress against those during our monthly family financial review. At this point in September 2020, we’ve accomplished two of the three goals; unfortunately, it’s unlikely we’ll accomplish the third this year. Because of that, we already rolled that goal to the top of our 2021 list. It’s regrettable we weren’t able to accomplish that particular one, but there’s no need in dwelling on the challenges of 2020. We all know and understand the unusual nature of this year; as a family, we’ve chosen to move on and challenge ourselves to complete it next year. For 2021, we have five key financial goals, and we’re confident we’ll achieve all of them!
Why Is This Beneficial?
More than anything, financial goal-setting provides you with specificity and direction in an uncertain world. Often, it’s hard to get our bearings when we feel like we’re lost. But goal-setting anchors us to what’s most important to our respective futures, no matter what that looks like. And as you might imagine, the goals will cover a wide spectrum of topics. Our household goals will look different from yours, which will look different from your sister’s, which will look different from her roommate’s, and so on. That’s why this is so valuable—it’s tailor-made to each person’s or family’s needs.
If you’re struggling with financial goal-setting, please contact me. I would be thrilled to help you through the rough patch if you’re trying to get started or are feeling stuck somewhere in the process.