Everybody wants to set financial goals. It could be to have zero credit card debt, taking that 3-weeks break at a luxurious ski resort up in the Swiss Alps, or a long-term ambition to put your three-year-old through university someday. Setting financial goals is taking that crucial step in creating your dream life. But more importantly, following through the steps is the only way to getting to the finish line.
1. List your financial goals
You could be saving for more than one goal at once and that’s fine. After all, these goals could precedence of another so you could set them in order by doing the “boring” ones first. So you could work on paying off the credit card debt first, then start saving for a new car.
2. Figure out what your real motivation is
This should be an intrinsic motivation which you believe it’s for the better for your own well-being, not what others deem so. Take for example if your financial goal is to build up a retirement fund, an extrinsic motivation says that’s because everyone says I should do so. “I want to save up for retirement so that I don’t have to worry about burdening my kids then” is an intrinsic one.
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3. Goals should be specific, measurable and challenging.
Vague does not cut it here. Telling yourself to save more money for that holiday will not work as well as “save $10,000 by Jan 2015”. Setting a specific time frame and putting a number allows you to know exactly when you’ll achieve your goal. While your goal needs to be challenging lest it becomes demotivating when you reach your target too easily and too fast, it needs to be possible and realistic too.
4. Break it down
Now with the goal, it’s about getting there. Break your plans into steps and visualize the process of trying to reach your goal. How does achieving this goal affect your day-to-day? If you’re working to pay off your credit card debt, think about what you’d do to minimize usage on the card or the actions you’d take to pay it off. Consider how you would react if you get a promotion email from your favourite online shop. Yes, unsubscribe and delete that email!
5. Evaluate your budget
Not sure how much money should go into your financial goals? 20% of your salary would be a good rule of thumb. Anything more could change your lifestyle entirely and your financial goals could just be doomed for failure. Anything lesser and you may be selling yourself short and not achieving as much as fast as you could.
6. Automate your transfer for savings
You think you’ve got it, but let’s not rely on your unfailing willpower. Set up an automatic transfer to have the amount you want to save to a separate account for your financial goals. Have the transfer happen right after paycheck arrives so you don’t even see the temptation to spend!
7. Don’t keep this a secret.
We’re not saying to tell everyone you’re building your gold mine, but having supportive friends help to keep your goal in check. A close buddy who knows of your financial goals can help to check in once a week and keep your goal in shape. Pretty much the same idea as a gym buddy!
8. Monitor and re-evaluate your progress
Decide how often you want to evaluate your progress. It could be at the beginning of each day or twice a week. Remember not to be too hard on yourself and celebrate if you’ve made progress (we don’t mean holding a big party and chalking up more bills here, not just yet). And if you messed up, acknowledge the hiccup and see if there’s something unrealistic in the plan you’ve created. It’s okay to re-evaluate your plans and revise downward, just keep going on.
Once you’ve reached your goal, consider rewarding yourself for a job well done. Treat yourself to something you like or invite that buddy to celebrate with you. Now that you’ve achieved your goal, going after the next one would be easier. Just remember not to let your goals be a New Year’s resolution that most people fail to keep!
Did you know that a Dr Wealth’s account allows you to set your financial goals? Plus a savings schedule to set you off in the right direction. Try it out now.