Financial Goal Setting
How to set achievable financial goals and build a support network to reach them.
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TL;DR
- Document financial goals by time horizon. Every goal should be SMART: specific, measurable, actionable, realistic, and time-bound.
- Financial advisors can help you build a plan to reach your goals and answer questions along the way.
- Accountants help with bookkeeping and tax management, while attorneys assist with legal matters, including estate planning and business formation.
Before focusing on how to grow your money, you should be familiar with how to manage your money following the principles addressed in prior chapters:
- Budgeting fundamentals
- Banking fundamentals
- Spending on credit
- Managing spending
- Saving for milestone expenses
- Spending on taxes
Successful money management doesn’t need to be complex, but it should be routine. Work to build healthy money habits to avoid investing beyond your means.
Financial Goal Setting
As you develop healthy money habits, make financial goals that reflect your aspirations for the future.
You can categorize goals by time horizon. Short-term financial goals typically have a time horizon of one to three years. Examples include time-sensitive priorities such as getting out of debt, improving your credit score, or planning for an upcoming expense.
Medium-term financial goals are those with a time horizon of 4-20 years and include milestone expenses and family planning. Lastly, long-term financial goals aim 20+ years in the future, often centered around retirement and estate planning.
Write down your financial goals for future reference. Doing so doesn’t just help you remember them; it makes it more likely that you’ll accomplish them as well. Use the following table as an example.
Timeframe |
Goal |
Start Date |
Target Date |
Target $ |
Monthly Savings Req’d |
Progress |
6 mo to 1 year |
|
MM/DD/YYYY |
MM/DD/YYYY |
$ |
$ |
% |
1-3 years |
|
MM/DD/YYYY |
MM/DD/YYYY |
$ |
$ |
% |
4 - 20 years |
|
MM/DD/YYYY |
MM/DD/YYYY |
$ |
$ |
% |
20 years + |
|
MM/DD/YYYY |
MM/DD/YYYY |
$ |
$ |
% |
Refer to the Financial Health Checklist for a list of 30+ goals. Medium and long-term financial goals can be dependent on investing, a topic explored in greater detail later in Grow
SMART goals
Goals should be SMART: specific, measurable, actionable, realistic, and time-bound.
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When setting a goal, clearly state what you want to accomplish. Think about the mission statement for your goal in terms of the ‘w’ questions: who, what, when, where, why.
Every goal you set should be measurable so that you can track progress over time. Therefore, identify a quantitative metric to define success. Achievable goals are realistic given your current financial situation, and relevant goals complement each other to define a larger vision. Lastly, financial goals should be time-bound. Assigning a target completion date gives a timeframe to monitor progress.
For example, a common financial goal is to build an emergency savings fund. To make this goal SMART, start by specifying the definition of success. A common beginner emergency savings fund size is enough money to replace three months' income in the event of unexpected unemployment. If you make $50,000 a year in net income, your measurement of success could be to save $12,500 in a savings account. In this example, if you believe you will continue making the same amount of money or more for the foreseeable future, you can consider this goal achievable.
Next, contextualize this goal against your others to establish priority. For example, if you’re currently unemployed, a more relevant financial goal could be establishing a source of income. Conversely, if you want to purchase a car, building an emergency savings fund first may be the more relevant priority.
Lastly, ensure this goal is time-bound by setting an end date, for example, two years. Doing so would require saving approximately $520 monthly, or ~12% of every paycheck. If this is achievable, start working towards it. You now have a reference point to track your progress.
Note how compounding returns influence your timeline. For example, if you invested $6,250 annually ($520/month) in a high-yield savings account offering 4% interest, you could earn an additional $250 each year ($6,250*.04). This return can shorten the time it takes to reach your goal. Therefore, you should monitor the value of your investments when tracking progress toward financial goals.
Don’t set financial goals by comparing yourself to others. Unless you are spending, saving, or investing with others, how friends and family choose to spend their money should not concern you. Appearances can be deceiving. If you can’t work out how your friend can afford to own a luxury car, go on overseas trips, or wear designer clothes, then relax in the knowledge that they are either a) in extreme amounts of debt, b) being spoiled by rich family members, or c) a drug dealer. Some people will always have more than you — many more will always have less — but that should not concern you on your personal financial journey. Focus on your own relationship with money as the true measurement of success.
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Stay positive, reaffirm your goals, and remind yourself that every bit matters. If you need help along the way, there are experts available to you.
Building a Financial Resource Team
