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Last Updated on November 27, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

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    Reference

    More by this author

    Ankit Garg

    Serial entrepreneur and working towards Early Retirement

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    Last Updated on June 9, 2021

    Finally Reach Your Goal with the 6 A’s of Change

    Finally Reach Your Goal with the 6 A’s of Change

    Many of us set goals for ourselves at the start of each new year. Some of us choose to set specific goals such as losing a certain amount of weight by a certain date or decreasing the amount of carbonated drinks we intake.

    While others choose more general, less specific goals such as be more organized, be healthier, or manage time better.

    Whatever your goals or New Year’s resolutions are, there almost always seems to be the assumption that we won’t keep our New Year’s resolutions by the end of the year. Most of the changes we wish to make are positive habits we hope to incorporate and establish in our everyday lives. Your belief that these goals are not attainable may actually be influencing your ability to make a change.

    Our problem is that we tend to focus on the obstacles that may be placed in front of us that can prevent or hinder our goal attainment rather than focusing on the actual process towards attaining those resolutions. Some models like the Stages of Change Model, also known as the Transtheoretical Model, are great guides to assist with understanding our levels of change.

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    So, how do we ensure we meet our goals and resolutions before another ball drops (literally and figuratively)?

    With the Six A’s of Change!

    1. Awareness

    As the old saying goes, the first step towards change is admitting that change is necessary. Being aware and acknowledging that change is needed is the first step towards tackling a goal. It takes strength to understand that change is needed. Believe it or not, some people don’t realize when change is needed. This change can be external while others can be internal. It truly takes a sense of mindfulness to become aware that change is warranted. Mindfulness practice can be beneficial establishing awareness towards needed changes in your life. If you are at this step, give yourself a pat on the back! You are one step closer towards your goal.

    2. Assessment

    If there is something in your life you wish to change on a permanent basis, it may be helpful to attempt to understand the origin.

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    For example: let’s say you have a certain behavior you wish to change. Assessing where the behavior may stem from can be beneficial to your goal attainment. Sometimes, establishing an origin is difficult and/or impossible to achieve and that is ok, but it doesn’t hurt to try.

    The key is to attempt to assess the origin. Sometimes the root of the problem or not knowing the root can hinder growth or progression towards goal attainment. In theraputic practice, this is known as a psychodynamic approach. If you are able to find an origin or contributor of behavior, it’s important not to identify origin of behavior as an excuse but to better understand where that behavior comes from so you can begin to work on tackling the behavior and the origin to assist with permanent results.

    Another part of the assessment stage is to understand and assess your why! Why do you want or need this change? Determining your why will assist in keep you motivated towards change.

    3. Accountability

    Stay accountable! One way to keep yourself accountable towards your resolutions and goals are to write them down. Write your goals down some place you can see them every day. I like to carry around a notebook that are designated towards my catergorized goals. My goals range from financial goals, personal goals, and business related goals. Each month I re-assess my goals to ensure that the goals I made in January of a new year don’t end up transfering over into other months or worse, years!

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    Another way to hold yourself accountable is to tell someone. Your close friends and family can’t hold you accountable towards your goals if you don’t tell them. Having a supportive environment is helpful when attempting to make change.

    4. Activation

    In the activation step you are taking action. Activate measurable actions towards change.

    For example, your New Year’s resolution may be to “be more organized in the mornings.” Some action steps you may activate include going to bed earlier, making the bed in the morning, and planning and prepping meals or outfits before bed.

    The activation stage should feel like homework. This is a cognitive behavioral approach in which you implement or activate measurable steps towards change. These are all measurable action steps that you can activate to establish adequate change in habits that will ultimately assist with your goal attainment.

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    5. Analyze

    Once you have activated measurable goals the next step is to analyze. Is everything in your activation step assisting with attaining your ultimate goal: “to be more organized in the mornings”?

    If you ask any business owner or entreprenuer, analyzing results and outcome measures is key towards success. If you don’t assess analytics within your own goals it will be difficult to determine if adequate change has actually been made. Ask yourself, are there some additional action steps that need to be activated in order to truly attain change? Am I being held accountable? Could I be doing more?

    6. Attain

    Lastly, attain! Ensure that you are not only obtaining the necessary activation steps but that you have attained your initial goal successfully. If you need to go back to step 5, that is ok. In this step, you have established adequate change and are sure that you have attained your goal(s).

    So, there you have it, The 6 A’s of Change: Awareness, Assessment, Accountablity, Activation, Analyze, and Attain! Don’t be afraid of change! There is often a negative connotation that comes with the thought of change. However, change is truly the only thing in this world that remains constant. Let’s make 2017 the year we actually keep our New Year resolutions. Always remember, “Change begins in your mind.”

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    Featured photo credit: Aline de Nadai via unsplash.com

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