Why do we need goals?
True, you could just drift through life without any clearly defined objectives in mind. However, if you are trying to achieve something in particular, it helps to know what you are aiming for.
Think about it. You would not:
- Play football without any goal posts (even if they were just jumpers in the park!).
- Try your hand at archery without a target.
- Attempt to climb a mountain without knowing where the summit was.
Goals help steer us in the right direction.
They are particularly relevant where our finances are concerned. Whether it is about paying off debt, saving for something special or realising a particular ambition like retiring early, objectives give you something to focus on.
As the well-known saying by Franklin goes, “If you fail to plan, you are planning to fail.” So let us explore how you can set clear financial goals.
Work out what matters to you.
Think about what is most meaningful to you in your work, your relationships and in life generally. Dream big. What would you love to achieve? Do not worry about other people’s agendas. What are your ambitions? Consider everything from the practical to the most outlandish. You can start analysing and rationalising them later.
Some goals will be quicker than others to achieve. Some will take a bit of time and need to be part of an overall strategy. So review your list and decide which are short term, mid term and long term.
A short-term goal, is something that will typically take less than a year to achieve, such as buying a piece of furniture, going on holiday, saving for a car or paying off a particular debt.
A mid-term goal cannot be achieved immediately, but should not take too many years to reach. For example, putting a deposit together for a house, carrying out home renovations, buying a holiday home, paying for a wedding or completing a qualification.
Long-term goals are ones that take over five years, such as living debt-free, paying off a mortgage, putting money aside for a child’s university education or saving for a comfortable retirement.
Once you have identified your most important goals, create a timeline for each one. Think about how much money you will need to save to make an impact on reaching them.
Make sure your goals are Specific, Measurable, Achievable, Relevant, and Timely.
It is no good just saying you would love to retire early. By what age? How much income would you need to live off? How much do you need to invest on a regular basis to build a sufficient pot?
Build a realistic budget.
It is important to have a good idea of what is coming in, and what is going out each month. By creating a realistic budget, you can be in control of addressing your goals and setting priorities.
Hopefully, it will identify some areas where there are a few surplus funds, which you can put towards your long-term aims. Make sure this amount is automatically directed into a separate account dedicated to your top priorities.
Track your progress.
Break down your goal into key milestones. Not only will that prevent the overall target seeming impossible, it lets you chart your progress. As a result, you can feel a sense of achievement at each mini-milestone reached. What’s more, if you do miss a target, you can analyse why and readjust your plan.
If you would like any help in setting your financial goals for the year ahead, do get in touch.