So you wrote your goals…now what? (If you haven’t taken the first step of brainstorming and writing your financial goals, start with How To Set and Keep Financial Goals – Part 1). People set goals all the time that quickly get discarded and forgotten. Why do you think gym memberships peak in January?
How can you ensure that you will be successful in achieving them? Read on for some tips.
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Make sure they’re SMART
SMART is an acronym that stands for Specific, Measurable, Attainable, Relevant, and Time-bound. Framing your thinking in this way helps you create much more realistic and manageable goals.
Specific – Avoid the New Year’s Resolution pitfalls. Make your goal specific. Rather than ‘I want to save more money,’ make it ‘I will build an emergency fund of $1,000 by saving $200 a month.’
Measurable – How will you know when you’ve achieved your goal? Break big goals into small steps and give each a measure of what it means to achieve it. It may be a number or it may be a task like reading a book or opening an investment account.
Attainable – There is nothing worse for motivation that setting an unrealistic, unachievable goal. Don’t set yourself up for failure. Be realistic about what you are able to do.
Relevant – The steps you are taking need to be carefully designed and get you closer to your goal. Start with your big goal and work backwards, thinking through what it will take to get you there.
Time-bound – Having a target date to achieve your goals is motivating and keeps you on track. One caveat to this, however. Although I believe in setting goals with a target date, it’s just that – a target. If you don’t meet that date, it’s not over. Just readjust and keep moving!
Automate, automate, automate
The easier something is, the more likely people are to follow through. Adults have a million things to think about on any given day, and putting money aside in a savings account doesn’t have to be one of them.
You’ve already done the work of figuring out how much you can afford to put aside each month. When you automatically deposit this money in a savings or investment account, you don’t have to make the active decision each month to do so. It eliminates the possibility of forgetting and keeps you from needing to make a choice at the end of the month between saving the money or going on that trip with friends.
How do you do it? It depends on your bank, but most financial institutions play well with each other. Poke around in your online banking profile or go into a branch to talk to someone. You can set the amount and the frequency that it is deposited. Some employers also offer an option to deposit a certain amount of money in a savings account when you get paid. That way it’s never even in your checking. Budget based on what’s left and you won’t miss it.
Avoid “lifestyle creep” by having a budget
“Lifestyle creep” describes the gradual, almost unnoticeable increase in spending as your income increases. I think back to my first full-time teaching job and my salary then, which was much less than now. What I required as my “basic” standard of living is very different, but I’ve barely noticed the change.
Adjusting your lifestyle as you make more money isn’t inherently a bad thing, but not paying attention to it and maintaining control of your spending can easily get in the way of your financial goals.
Create a realistic budget with your current income (head over to The Budget Mom for great tips on creating a budget). You’ll know how much you need to live and how much you can put toward your goals. If you bring in anything additional one month, put it directly toward your goals first (especially if you are carrying high-interest debt such as credit cards). You get used to living on a certain amount, so anything extra is just that…extra.
Break big goals into small steps
Financial goals can often be overwhelmingly big. Saving for a house, buying a car, paying off credit card or student loan debt all require a lot of time and money, and if you’re not in the financial place that you want to be, it can seem pointless, like you’ll never get there.
For instance, let’s say that you are saving to buy a house, and you calculated that you would need $20,000 for a down payment. That’s a lot of money, but breaking it into smaller steps can significantly help with the Measurable and Attainable parts of your SMART goal. Step 1 might be to research and find the right savings account that has the best interest rate. Simply opening one where you have your checking account might not be the best option.
Step 2 might be to save $5,000 within the first year. Break that down to $416 a month or approximately $100 per week. Step 3 is to figure out how to shift your lifestyle so that you can save $100 a week. That might be as simple as getting rid of cable or moving to a prepaid phone plan. Already it seems a lot more manageable.
Celebrate successes (even small ones)
Do you ever add something to your to-do list that you’ve already finished just so that you can cross it off? I know that’s not just me. It’s a good feeling to accomplish something, no matter how small it may seem. Personal finance is not an all or nothing game. It takes a lot of small steps to reach a big goal. Give yourself permission to celebrate!
Be kind to yourselves
No matter how much time you have spent planning, life doesn’t always listen. There will be setbacks in your journey to achieve your financial goals. You may lose a job, have car trouble, a medical emergency, or a broken washing machine. For me, it was a sick cat, but that’s another story. You may have to temporarily pause your automatic savings deposits for a month or two, you may have to dip into your emergency savings (but that’s why it’s there!). It happens. Take a breath, reevaluate what you are able to do and keep moving forward.
Finally, the key to making financial goals realistic is to revisit them. Out of sight, out of mind, right? Don’t let that happen. Whenever your situation changes, you accomplish a goal, or you just need a reminder of why you’re doing this, revisit your goals. At the minimum, you should reassess once per year.
What do you do to achieve your goals?