Setting Financial Goals

Having goals for our finances helps us to measure our success and also will hopefully motivate us more with our financial planning.

For me, since I am an avid budgeter, I love setting goals because it’s something more exciting than just writing out your budget and following it.

Here is how you would go about writing your goals:

1.Make a list of five to ten goals you might have, either as an individual or as a couple.
These goals could be anything from paying off debt, buying a new lawnmower or saving for retirement. Think about short and long term goals. When you write down your goals think positively (I want to save for a vacation) rather than negatively (I wish I could stop spending so much money.)

Don’t spend time analyzing these goals at this time, just write them down.

2. Once you’ve written down these financial goals, think about and discuss what they actually mean. For each goal, ask yourself these questions:

• If you have a partner, do we both agree on this goal? If not, how can we compromise?
• When do I want to achieve this goal?
• How am I going to start working on this goal?
• Do I need help from anyone?
• What are some obstacles that need to be overcome before starting this goal?

There was a study done in 1979 of 1000 graduating Harvard students. Of these students, 84% of them had no defined goals. About 13% of the students had goals, but not in writing. These 13% of students earned twice as much on average as the students without a plan. Then there were 3% who had written goals and these students earned, on average, 10 times more than the other 97% without any written goals.

To have effective goals, use the following to help you: (SMART goals)

Specific: You might have a goal of “traveling” or maybe you want to “retire comfortably.” The question you have to ask yourself is “Where do you want to travel?” “How much will it cost you to travel?” As far as retiring comfortably, “How much money do you need by the time you retire?”

Measurable: It’s easier to achieve goals if you attach a money goal to it. That way you can keep track of how you are doing with your desired goal.

Attainable: This means that you know your goals can be reached.

Realistic: Your goals may be attainable, but are they realistic? For instance, becoming a millionaire is attainable, but if you are working from nothing, becoming one next week isn’t realistic.

Time-specific: Set a specific date for each of your goals. This could be one month, one year or even a day.

3.Next, you need to develop a plan. Keep in mind what you learned about SMART goals when writing in this next part. You need to decide exactly how you are going to reach your goals. For example, if you goal is to buy a home next year, your objectives might be to improve your credit scores and to save $7000 for a down payment.

Or if your goal was to start a savings account for your kid’s college education, your objective might be to find $100 a month in your budget and open up an account where they automatically withdraw this amount.

So – go to it. Write a plan.

Practically, I would make a table with there headings - Goal, Objectives and Key Dates.
For example, in my short term goal table it would look like this:
Goal: buy a new lawnmower
Objective: Save $35 a month
Key Date: Purchase a lawnmower in April 2010 (I would have $245.00)

Obviously your goals will change because you will go through different stages of life and also because you will reach some of your goals and want to set new ones.

The main thing is to have something tangible to work towards.

Have Fun!