It’s exciting to set financial goals. You are taking a big step and making a leap of faith. We all need a plan of action to get where we want to go in life.
Making sure your intentions are realistic can alleviate a lot of frustration. As they say, a goal is a dream with a deadline – and unrealistic financial goals can steal away the joy of achieving objectives, your time, and your money.
The best financial goals should be S.M.A.R.T. – specific, measurable, achievable, realistic, and time-bound. The approach is to calculate, adjust and succeed! To help you assess your goals, here are five steps to evaluate them.
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5 Simple Steps to Evaluate Your Financial Goals
1. BE SPECIFIC– Are you clear about the goals you want to achieve? Do you have the motivation to make it happen? Determining the who, where, when, and, most importantly, why behind your financial goals will firmly guide your course. It has a significant impact on whether or not you achieve them.
An aimless approach toward accomplishing your goals only makes them harder to achieve. Once you know why you set the goal, it becomes much easier to plan effectively and stay motivated.
For example, if you plan to retire early (it’s great if you have an age in mind), get a clear picture of what you want to do after retirement, where you want to go, and how you want to live as a retiree.
As you evaluate each step, one by one, you can determine how practical your goal is. Being specific with what you want to achieve gives you the – why – helping you form a realistic action plan. Another advantage is that minor setbacks will not easily derail you.
2. SET MEASURABLE GOALS– You should be able to evaluate your progress along the way.
It’s crucial to have a system for monitoring your goals. For example, if you aim to save or invest 10% of your income, the idea is to have a practical way of tracking your development.
Setting a budget helps you do just that –While many people don’t follow a budget, knowing where your money is going is vital. Knowing what cash you have coming in and going out is essential for a clear perspective on the big picture. It helps you to evaluate your spending habits and make adjustments as needed.
A monthly budget is the most common type of budget since most bills are paid monthly. You need to track your spending and know how much money you have left at the end of the month to beset realistic goals.
Sticking to a budget takes discipline and determination – primarily what you need to achieve any financial goal.
Setting milestones is also a great way to measure your progress. Milestones help you see where you are and how far you’ve come on your journey.
3. BE SURE GOALS ARE REALISTIC– You have the tools to fulfill them in a reasonable amount of time. How financially literate are you?
Financial literacy is understanding various economic areas, including personal savings, loans, and investments.
A lack of monetary knowledge can prevent you from losing control of your money and possibly setting overly aggressive goals. However, setting goals puts you far ahead of those who don’t set goals at all.
A typical financial goal is to make a profit from investments. However, investing in markets without knowledge can lead to losses, thus making your goal unattainable.
Building financial literacy and gaining confidence in your abilities go a long way in helping you stay on top of your resources. Another great benefit is the ability to use money as a tool.
You can use money as a tool to help you reach your ambitions faster, give you more free time and make life more enjoyable. Financial literacy helps to identify the methods you can use to achieve those goals.
Improve Your Financial Literacy with the Ultimate Guide to Financial Literacy
4. THEY ARE RELEVANT– Are your goals relevant to your overall objectives? Do they complement the life choices you are actively making? They should fit in quickly with your mission, skills, and talents.
If your financial goal is to have a net worth of $1,000,000, it should be relevant to your aspirations. For example, if you have aspired to live off the grid without access to any technology, it may not align to build a sizeable net worth.
Yet, knowing your current net worth can measure how realistic your goals are and highlight any areas that could use improvement.
It may be worthwhile if your goal is realistic and you can apply your resources to accomplish it.
Moreover, pursuing a relevant and worthwhile financial goal is the name of the game.
5. GOALS ARE TIME-BOUND– There should be a specified date or time frame for reaching your goal. Doing this will keep you accountable and help you to prioritize. Let’s face it –Prioritizing is not the most effortless thing in the world.
Knowing what you should prioritize helps you to focus on each task effectively. And sometimes, it needs to be clarified when and what to prioritize. A simple way to handle this is to classify your financial goals into short-term and long-term. Your short-term plans can be further broken down into daily, weekly, and monthly goals.
Equally, your long-term goals can be split into shorter-term goals. A more precise idea of which goals to prioritize will begin to form. For example, putting off the intent to buy a house is a good idea if you also opt to pay off debt or build an emergency fund.
Paying off debt would then become your priority, and this goal can be further broken into specific obligations you wish to pay off in the short term. Once the debt is paid off, building an emergency fund will become the next priority.
Now that you’ve prioritized your goals and classified them into long and short-term, you can set a realistic time frame for accomplishing each one.
Setting aside time to evaluate your financial goals gives you clear direction and a much higher chance of accomplishing them.
As you assess them, see if they are S.M.A.R.T. goals. If not, you may need to make adjustments to ensure they align with your long-term objectives.
Equally, long-term goals can be split into shorter-term goals. A more precise idea of which goals to prioritize will begin to form. For example, putting off the intent to buy a house is a good idea if you also opt to pay off debt or build an emergency fund.
Paying off debt would then become your priority, and this goal can be further broken into specific debts you wish to pay off in the short term. For example, once the debt is paid off, building an emergency fund will become the next priority.
Now that you’ve prioritized your goals and classified them into long and short-term, you can set a realistic time frame for accomplishing each one.
Final Thoughts
Setting aside time to evaluate your financial goals gives you clear direction and a much higher chance of accomplishing them.
Setting S.M.A.R.T. financial goals is an effective way to work towards the financial future you desire, no matter how big or small your goals may be. As you assess them, see if they are S.M.A.R.T. goals. If not, you may need to make adjustments to ensure they align with your long-term objectives.
Setting S.M.A.R.T. goals requires you to focus on your current financial situation and defines what you want and when you will accomplish it. That, along with a plan of action to get there, is achievable and realistic for your lifestyle and resources.
See also: Top 5 Ways to Make Your Money Work For You
