Setting Financial Goals: Make Them Smart and Simple

You’ve heard the saying that nothing worthwhile is achieved without a goal? Well, this is especially true with your financial planning. Those who just go along, hoping for the best, are usually the ones who struggle financially or get themselves into too much debt. Those with a plan generally come out better off.

The best way to get what you want is to plan for it. Setting financial goals is an important part of planning to achieve financial security and have enough money in your retirement years to live the way you want. Without a plan in place, you could find it harder to get the things you want; it could even mean scrimping in your older years. And who wants that to look forward to?

So, how do you set financial goals as part of a financial plan?

Understand Your Starting Point

The first step is understanding your current position. To do this, you really do need to have a budget. I know, I know – we keep talking about this! That’s because it’s so important!

So bite the bullet and sit down to create an effective personal and household budget. Really, you owe it to yourself and your family because the key to financial security, is knowing where you stand.

With your budget in place, it becomes so much easier to control your day-to day finances. Your budget will tell you how much you can spend in different categories and whether you can afford that ‘something special’. Your budget tells you how much you can save towards those big purchases we need to make from time to time. Your budget is your most important tool in your financial plan. So stop drifting from pay cheque to pay cheque and write your budget!

Examine What Is Next

The next step is to work out where you want to be in various stages of your life.

  • What age do you want to retire?
  • How much money do you want to retire on?
  • Would you like to buy a holiday house sometime?
  • When will you have kids?
  • When will you buy your own home?
  • When will you buy the car of your dreams?
  • Would you like to travel? When do you want to pay off your mortgage?

These are all common questions that people ask themselves when deciding on their financial goals. You’ve probably got some more as well.

Take your time to work out what you really want in life and set your goals accordingly. If you have a partner, it’s a good idea to talk about this process together. It’s no good setting your own goals, only to find that their goals are completely different! Make these important decisions together, integrating ideas from both of you.

Make A List

OK, so now you have your list of financial goals and when you want to achieve them. List them in order, with short-term goals first, followed by medium-term and then long-term, like retirement, at the bottom.

How much is it going to cost you to achieve each goal? You need a figure to go into your plan, so do some research and write in a figure next to each goal.

Define Your Numbers

Now comes the challenging bit – how to plan to achieve your goals. Basically, you need to work out how much you need to save from every pay check, in order to get what you want, when you want it. Long-term goals have longer to accrue funds, so you might allocate smaller amounts until you can free up more funds (or earn more money).

Remember, you don’t need to rely solely on savings to fund your goals. Consider investment, especially when it comes to long-term goals. The more you understand about the opportunities out there to help you fund your goals, the easier you will be able to achieve them.

You’ll probably find that you’re going to need to adjust your financial plan and reassess your goals from time to time. Things change as you go through life, so take the time to check you are still on track. Even the best-laid plans can run off the rails, so be prepared to re-evaluate and make the necessary changes.

Make Sure Your Goals Are Good Goals

So what makes a good goal?

You may have heard that all goals should be SMART. This stands for specific, measurable, attainable, realistic and time-framed. 

  •  Setting a goal for “becoming rich” is not specific; you need numbers.
  •  You need to be able to measure whether you are on track. This helps to keep you motivated.
  •  A goal has to be attainable; a daydream is a wish you know you couldn’t really achieve. You might have to stretch a bit to reach a goal but you can get there.
  •  Our financial goals have to be related to your life, to be realistic. This is where setting small and medium term goals is helpful. When you have achieved these, you can set bigger goals.
  •  A goal without a time-frame is a daydream. A time-frame keeps you motivated and allows you to measure how you’re tracking.

Goals are the stepping stones in your financial plan; they get you to where you want to be.

So, what kinds of financial goals do you have? What are your steps for making them a reality?


Setting Financial Goals: Make Them Smart and Simple — 21 Comments

  1. Basically, to be able to retire in about 20 years or so, and most definitely be debt free! Using the SMART plan is always a good idea – be specific, but don’t set yourself up for failure.

    • Not setting yourself up for failure is key. I find many people do this and it all it does is get the discouraged enough to not want to start again which isn’t good. You can always adjust goals as you go but stating with something you can manage is the only key to success.

  2. Our main goal right now is to pay off my girlfriend’s student loans ASAP. We need to come up with some goals for after that. This process can be hugely overwhelming so don’t think you have to get it all done in one day. Take it one step at a time with the end goal of a game plan in mind!

  3. Our #1 financial goal today is preservation of capital. So we invest very conservatively and ignore the recommendations of “experts” (nearly all of whom stand to benefit financially if people follow their recommendations). By taking less risk, we know our potential return is lower. On the other hand, the probability of our savings going “poof” in a runaway Flash Crash or Meltdown II is zero. To compensate for our relatively low return, we save more and spend less. And we sleep well at night. 🙂

  4. Saving as much as you can is a goal in itself you know and you are working towards it. Goals can be possible at any stage in life. You could set a goal of so many online contracts or something. As far as your future wife goes, don’t depend on her wealth and don’t let her depend on yours. You are in control of what happens.

  5. Can’t agree more; but would just like to add a stage before ‘understand your starting point’: dream where you wish to be. Otherwise there is a high probability of ‘lock it’ – you plan to contin ue on the present course of your life when the best fro you may be to change completely.

  6. I agree with goal setting! Also, I think it’s good to focus on short or medium term goals (i.e. ones you can “check off” or mark complete) while automating retirement savings, so that you can see progress and also get x.y million by the time you’re ready to leave the workplace.

  7. Most financial goals I find to be simple…except retirement. I save the designated 15% and have been since I started working, but I have no sense of what number is “enough.” It seems like there are too many unknown variables to predict my health, family status and spending needs at that age. I know that goal still needs quite a bit of fine tuning.

    I definitely think understanding your starting point is one of the most important steps.

  8. I would agree. We also have the same challenge. It is really hard to know what the future will hold, what inflation will be, etc. so picking an exact number to hit is really hard. However, I think we can keep this in mind while still making progress. We can adjust our number as we go but we should always be sure to be contributing and working towards that goal.

  9. SMART goals can be powerful. They are not for everything, but they are very practical and versatile, which is sometimes just what you need to ramp things up to the next level. So many people don’t know how to back out of big stressful situation and map out what they need to do to become successful. This post is for them.

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