How To Set and Achieve Financial Goals
Setting appropriate goals and achieving them is the key to success in life and personal finance is no different. Do you want to be debt free? Are you going after early retirement? Is financial independence your goal? Do you just want to take a nice vacation? Setting and achieving goals is how you accomplish any of these things.
The good news is all of these goals can be achieved using the same basic method. You should determine your personal finance goals, evaluate where you currently stand, set short term milestones that show progress, and track progress towards achieving those goals.
Method to Achieve Financial Goals
Time needed: 30 days.
How to improve your financial situation by setting goals and achieving them:
- Determine Your Goal(s)
Decide what you really want to accomplish. Good goals should be specific, measurable and achievable. Examples of common financial goals include paying off your debt, acquiring $1 million in assets, becoming financially independent, buying a home and retiring early. You must decided what is most important to you.
- Evaluate Where You Are Now
Once you determine your goals you can move on to self evaluation. You cannot improve upon your situation until you understand what it truly is! Using a tool like DollarTrak App is great for this. Once you understand your financial picture you may even change your mind on the goals you want to pursue.
- Set Milestones
Long term goals can seem impossible to reach. You need to break a long term goal into smaller and more obtainable pieces. Milestones are the shorter term pieces of the larger goal. You can have as many milestones as you want. Milestones should have a deadline that they should be achieved by. For example, say you have a goal to save $12,000 over the next year. You might set 12 milestones of saving $1,000 by the end of each month. If you hit all of these milestones you will hit your goal. If you miss a milestone, you will know quickly that you are off track and the goal is at risk.
- Track Progress
Now you know where you are, you know where you want to be, and you have milestones defined that help you get there. All that is left is to achieve your goal. Start by going after your first milestone, and then the next milestone, and so on until you hit your goal. If you miss a milestone along the way you must keep going. You can try to make up what you missed over time and still hit your goal in a reasonable time. This part is important as it helps you stay motivated.
Example of Setting Goals
Here is an example of using the above method to achieve a financial goal. Assume that you are young, have a student loans, are light on savings, and you want to put yourself on a solid financial track moving forward. Following the above you would:
Determine Your Goal (s)
Maybe you really want to be a millionaire, but this could be too far out to be a good goal. Perhaps being financially secure is a better goal? That isn’t easily measurable though. In this case, maybe the best goal would be to have a positive net worth. This would mean your assets are worth more than your liabilities. This is a great goal to start with considering your personal situation.
Evaluate Where You Are Now
Now you need to figure out where you are currently. You can do this using a tool like DollarTrak App to enter all of your liabilities and assets to create a current net worth value. Let’s assume because of your student loans, once you add it all up your net worth is -$7,824. To meet your goal you need to increase your net worth by $7,825 from where it is now, leaving you worth $1. Now you know the goal and what you have to do.
Increasing your net worth by $7,825 can sound like a tall order depending on your income. The best way to make it seem like it isn’t is to break it into small pieces. To hit that goal in 1 year you need to increase your net worth by $652 each month for 12 months.
You can increase your net worth by either buying assets or paying off liabilities. Let’s say that your student loan payment includes $152 per month in principal when you make minimum payments. You need to make up an additional $500 per month to hit your goal and considering the low interest rate on your student loan you decide to save that money instead.
Your milestones should be to save $500 each month. This, when combined with the principal payments on your student loan, will be enough for you to hit your monthly milestone and eventually your goal.
Now you know what your goal is and have a plan to meet the goal with milestones defined to get you there. The last important piece is to regularly check your progress on each milestone’s due date.
Since you have a fairly straight forward set of milestones you could easily set a calendar reminder to check your savings deposit on the first of each month. Set another calendar reminder to check your total progress in 1 year as well. If you find yourself slipping, perhaps you only saved $400 one month, then adjust the rest of the milestones to compensate so you still hit your annual goal.
Achieving financial success is not magic. It starts with defining what success means to you. Evaluate where you are starting from, where you want to be, defining milestones and tracking your progress on the journey.
Getting started with your first goal is the hardest part. Once you have achieved a few goals you will find setting more and achieving them becomes easier and easier. This will put you on the path to sustained financial success no matter how you define it.