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Last Updated on November 27, 2020

How to Set Financial Goals and Actually Meet Them

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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

    How to Work More Efficiently and Stop Rushing to Meet Deadlines 10 Best Ted Talks About Procrastination That Will Ignite Your Motivation How to Set Financial Goals and Actually Meet Them 10 Ways to Build Positive And Effective Work Relationships 17 Practical Money Skills that Will Set You Up for Early Retirement

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    Last Updated on September 27, 2021

    8 Reasons Why Goal Setting Is Important to a Fulfilling Life

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    8 Reasons Why Goal Setting Is Important to a Fulfilling Life

    The importance of effective goal setting cannot be overstated on our personal journeys towards success. This is why there are countless articles out there on how to set your own SMART goals and even why it’s a skill commonly taught to a small degree in classrooms.

    Learning the importance of goal setting and the benefits of sticking to those goals can be the defining factor determining whether we truly embrace the importance of goal setting. The more willing we are to embrace this method, the more likely we become to reach our personal definitions of personal and professional success.

    Thus, this article is going to walk you through some of the benefits you’ll see from learning to set goals for yourself and answer the question — why is goal setting important?

    1. Goals Guide and Align Our Focus

    It’s hard to get to where you want to be in life if you don’t know what you’re aiming for. Some people believe avoiding goals means living a more care-free life. How many times have you heard the phrase “If I have no expectations, then I can’t be disappointed”?

    But is that really what our lives have come to? Living just to avoid disappointment? It doesn’t seem like an overly optimistic view in my opinion. And since you’re reading this article, I’m willing to bet that you agree with me.

    Without goals, we lack a degree of direction and focus. Sure you may be able to avoid disappointment, but just avoiding disappointment doesn’t mean you are necessarily happy.

    Without goals, we will pointlessly waste our time, energy, and efforts. Listen to anybody who is the top of their field and they’ll tell you something like this,

    “Yes talent is important, but often your success depends much more on what you decide to do with that talent.”

    And what you will do with your talent largely depends on your focus.

    Your goals give you direction. Your goals give you something to shoot for. This direction and target you create in your mind will help you to progress towards your main life goals rather than simply wander around aimlessly. These goals will help you align your actions and behaviors as you continue moving forward.

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    So, why is goal setting important? Because it gives you direction, alignment, and purpose!

    2. Goals Help You Avoid ‘Shiny Object Syndrome’

    Basically, shiny object syndrome is always being in pursuit of the next big thing, constantly switching your goals based on what you feel is most fun and interesting at the given moment, but never actually giving yourself time to accomplish any of those goals.

    You don’t get anywhere because you continually change the direction you are heading in. This is one of the consequences that may result if you decide to live a life without goals.

    Your goals can sometimes help you to create mental barriers, or blinders, that help you to remain focused on what you think is important and avoid the things that are second priority. When you outline goals for yourself, you are better able to avoid things that distract you from achieving and accomplishing those goals.

    Setting goals helps you to step around the other shiny objects because you’ve taken the time to make some mental notes that remind you what it is that you want from your life. Your goals act as subconscious deterrents to anything less than your main priorities. This is what helps you to reach your personal definition of success.

    So, why is goal setting important? Because not only do goals tell you what you want from life, but they also help you realize what you need to give up and avoid to achieve that.

    3. Goals Turn Our Largest Goals into Manageable Steps

    A lot of us have big hopes and dreams. It’s one of the things that make our lives exciting!

    But a lot of us never take the time to figure out how we can effectively get from point A to point B. So, sadly, we never fully achieve those goals. We look at our dreams and convince ourselves that only a select few people ever achieve them, so we write ourselves off as people not meant to reach that level of success. Looking at the end product of a goal can be intimidating, daunting, and discourage us from even pursuing them.

    Thankfully, goal setting helps us break large intimidating goals into smaller ones. These small steps and more achievable goals will help us to build momentum and will encourage us to keep working towards the next phase of our goal. The form the foundation from which we can begin building the life that we truly hope to have for ourselves, our families, and may even for our communities depending on how big your goals are!

    Whenever I get talking about this aspect of goal setting, I can’t help but think about the mountain climbing analogy, and that the easiest way to climb a mountain is simply step by step.

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    So, why is goal setting important? Goal setting gives you a list of manageable steps that you can take in order to take your life from where it is now to where you want it to go both effectively and efficiently.

    4. Goals Encourage You to Take Action

    This builds on the last benefit of goal setting. Not only does effective goal setting help you break down your larger goals into smaller, more manageable ones, but it also encourages you to actually begin taking action on those goals. After all, a plan is completely worthless if you aren’t willing to invest the effort required to execute it.

    Setting your goals and putting your plan in place motivates you to begin taking action towards achieving them. These goals give you something to plan and work towards. Essentially, they help propel you forward.

    What I like to do is write out and place my goals somewhere that I’ll regularly see them. This constantly serves as a reminder of my top priorities. It allows me to focus on taking small progressive actions towards achieving these goals daily.

    This ensures that I don’t fall into the trap of setting a goal, beginning to work towards it for a while, but then having my motivation fade resulting in me falling off track. This is exactly what many people see happen when it comes to their “New Year’s Resolutions.”

    If you want to learn about how to take action towards achieving your goal, here’s how: How To Take Action Towards Your Goals Right Now

    So, why is goal setting important? Because goal setting actually motivates you to stop thinking about your goals and actually get out there and achieve them!

    5. Goal Setting Helps You Continually Improve

    This is something that a lot of personal development and self-improvement writers talk about, continual improvement. For those of you who are not aware of the term, continual improvement is exactly what it sounds like — taking small steps towards improvement as frequently as you can to develop into the person you want to become.

    What’s the point in improving a little bit each day if you’re not improving in the areas that you want to improve in after all?

    The goals that you define for yourself will inevitably shape you into the person who you want to become. They’ll shape your character. Your goals can help you measure your progress as you strive for this type of development.

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    Essentially, having goals helps you determine where you started, where you are now, and how much further you need to go. In this manner, your goal setting can serve as milestones and benchmarks that help you determine how well you’re progressing towards your most important goals!

    So, why is goal setting important? Goal setting helps you make improvements each day that will slowly transition you into the person you want to become.

    6. Goal Setting Keeps You Accountable

    Not only does setting goals help you measure your progress, but it also is a means through which you can keep yourself accountable. Too many goals fail because they lack this crucial aspect of outlining accountability.

    For example, if I have the goal to do 50 push-ups, that’s great. Most people would support that goal. However, this goal lacks accountability. When do I want to accomplish this goal by and what steps do I take to get there? These are important questions that the original goal leaves unanswered.

    A much more descriptive and specific goal could be to do 50 push-ups within the next 3 months by starting at 5 push-ups, and then adding 5 each week. This goal outlines the deadline as well as the steps I’m going to take to achieve it. This plan will keep me accountable because if I fail to retain my progression schedule, I will know that I’m not going to achieve the goal on time.

    Additionally, it can serve as a marker helping to signify when something is impeding my progress that I may not have initially accounted for. This tells me that I need to re-evaluate what I’m doing and figure out what adjustments I can make to facilitate my success.

    So, why is goal setting important? Setting goals is key to keeping ourselves accountable and on-track towards accomplishing our goals according to the schedules and deadlines we set for ourselves.

    7. Goals Make You Feel Good

    Trust me, the progress you feel as you set and achieve goals can become super motivating and super addicting (in a good way)! The dopamine release you get from achieving your goals is like a little reward for our brains that continually motivates us to try and hit that next goal!

    Having some clearly defined goals will help you to feel better about yourself and your life in general, especially when you stick to those goals, actively work towards achieving them, and end up accomplishing and surpassing your initial expectations. I’m not the oldest book on the shelf myself, but I can attest that there are not many feelings quite like the one you experience when you truly get on a roll!

    Additionally, our goals give us an endpoint to shoot for. Rather than progress for progress’s sake, you can actually see where you’re heading! That’s so much more rewarding. Think about a long car trip as a kid. You ask “if you’re there yet?” ever 20 minutes. It seems like the drive drags on forever.

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    If you don’t know where you’re going, you risk the journey becoming tedious. It doesn’t tend to be much fun wandering around aimlessly. Goals make us feel good about where we’re directing ourselves.

    So, why is goal setting important? Because setting goals and accomplishing them plain and simply make us feel better about ourselves and our lives!

    8. Goals Help You Live Your Best Life

    I’ve talked a lot in this article about how goal setting helps us progress towards our top priorities and live the way we truly want to live. So I think it’s fit to end the article with this goal because, in the end, I feel it’s the most important one.

    Setting your goals and clearly defining what they mean to you will help you live a life that is tailored to your beliefs and values. Your life will become directed towards the things that you most want to achieve.

    Life is a tricky game and only in very rare circumstances are things handed to us on a silver platter. Often it takes a great degree of work, planning, and effortful execution of both.

    There is no point clinging on to things in your life if they don’t bring you happiness or help you accomplish something that, in some way, aligns with your goals.

    Simply put, setting goals helps us live a life that allows us to pursue the challenges and rewards that we truly want to achieve.

    So, why is goal setting important? Because our time is always limited, and setting clearly defined goals can help ensure that you make the most of your life and live to the fullest! Find out more here: How to Use SMART Goal to Become Highly Successful in Life

    Final Thoughts

    These are just a few of the benefits of goal setting that outline why it truly is so important. If you take a moment or two, I bet that you can even think of a few more benefits yourself that you could add to this list.

    If I could leave you with something, it would be this:

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    Goal setting has the potential to take us to some amazing places in life because we all have talent and ambitions. To achieve your biggest dreams, you need to be willing to sit down and create a life design uniquely tailored to you that will help you achieve them!

    More Tips About Goals Setting

    Featured photo credit: Unsplash via unsplash.com

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