How To Set Financial Goals For Future Success
How do I set Financial Goals?
I began my journey towards financial freedom by sitting down and figuring out my financial goals, by using the S.M.A.R.T.E.R goal-setting process.
This enabled me to clearly define what I wanted and how I would measure it. As well as when I wanted to achieve it by and why I wanted it in the first place.
I created my financial plan by having clearly defined financial goals, a strong why and an understanding of my financial situation.
When it comes to goal setting, the S.M.A.R.T.E.R goal process is the Gold standard of operation. A goal without any clear direction or course of action is just a dream!
It is imperative that when you set your financial goals, you must adhere to the S.M.A.R.T.E.R process. Below is the complete step by step process for creating your financial goals:
1. Find your why?
Finding the reason why you are wanting to set and achieve a financial goal is critical, it helps guide you on your journey, it keeps you accountable and helps to motivate you when needed.
Having a strong why is critical in helping you achieve success, as it will drive you to accomplish more. An example would be wanting to increase your income for your children’s college fund to help set them up with a good education. This is a much stronger reason why than I just want more money.
2. Figure out your starting point
What financial position am I in currently? Does your income cover your expenses? Complete a budget to track all your income and expenses. Calculate your Net Worth and Credit score to figure out your financial position. Personal Capital is a great free tool to use for this step, making calculating your net worth a lot simpler.
Your Net Worth is just your Assets minus your Liabilities. Or everything you own of significance, minus what you owe in debts. Your net worth gives you a great starting point to work from, and help set achievable goals.
You will also need to complete a budget so that you have a better idea of your income and expenses and your cashflow. This will assist in setting realistic goals based on your available cash flow.
3. S.M.A.R.T.E.R– The goals should meet the following criteria:
Specific- Your financial goal must be clearly defined, as much detail as required to remove any ambiguity or any errors in interpretation. E.g. To have $60,000 of yearly passive income, or to have a 6% return.
Measurable- You must be able to measure the outcome of the financial goal, it must have a definitive answer to whether it has been met or not. In our example, the measure is the amount of money E.g. $60,000.
Attainable- The financial goal you set must be attainable, the aim is to set a goal that pushes and motivates you, but isn’t realistically out of reach. If I set a goal of $100million today, that would appear unattainable, rather it would be more attainable to hit a goal of $1million, once achieved I can hit that 100 times more! This section will be up to the individual to try and determine how far they want to reach for.
Relevant- Your financial goal should align with your actions and the circumstances surrounding the goal. For example, seeking a goal of 6% interest on your savings in your savings account is not relevant to the current market rates and economic situation.
Time measured- The financial goal must have a start and finish date! Therefore you can be held accountable to an end date, otherwise, you are not likely to finish. E.g. In 30 years’ time I want to have $1,000,000 and financial freedom.
Evaluate- Your financial goal should be continually evaluated, you should measure whether you are on track to reach your goal and are pleased with the current performance, or if you need to change. This is all part of the fun of working towards a goal and helps keep you accountable. E.g. I received an inheritance of $200,000 this year, which has helped me get ahead of schedule to achieve the goal of $1,000,000 in 30years’ time.
Reviewed/Reward- You should assess and celebrate your achievement, once you have reached your goals pre-determined finish date/time. Were you able to achieve your goal? If so, then you deserve to reward yourself and if not, were you close to achieving it? Why weren’t you able to achieve your goal, and how can you change it for next time?
I want to have $1,000,000 saved in my account in 30 years time for my retirement, I will review my progress every year until completion in 2050.
4. Put a plan in place
After setting your financial goal, you will need to create a plan to achieve it. Will it require you to cut back on some of your expenses? Will you invest your extra cash flow? Or work more shifts in order to increase your income? Or start a new Side Hustle? Each individual plan for achieving their financial goal will differ, due to their circumstances. It may get challenging at times, but if you stick with it you will be grateful once you are able to achieve your financial goal.
5. Enjoy your progress
You only live once, so make it enjoyable. Enjoy the path you are taking towards achieving your financial freedom, it will be tough at times, but find the enjoyment in knowing you are making progress towards your goal.
Setting financial goals can seem daunting initially, but once broken down into the S.M.A.R.T.E.R process, they become a lot more manageable and achievable. Following this process should set you on your path to financial freedom.
My goal is to have lots of money!!!! Does this goal meet the S.M.A.R.T.E.R criteria? Post your answers in the comments below……