How to Set Your Financial Goals and Stay on Track to Achieve Them

29 May 2020

Financial goals are personal and vary widely across each person. For one person, it could be to pay tuition for an MBA, for another, it might be to achieve financial freedom by age 50. Whatever your goal may be, setting your goals properly and developing an actionable savings plan will set you up to achieve those goals on your terms. Here’s how you can set your goals, and what you can do to stay on track to achieve your goals.

Set specific, measurable financial goals

Having a specific, measurable goal is the only way you can create a plan, and hold yourself accountable to that plan. If your financial goal isn’t specific and measurable, it’s just an idea or a dream.

To set a specific, measurable financial goal, start by writing down your goal (or goals!). As you’re writing down what it is you want to be able to afford, also write down these 3 things that will make your goals specific and measurable:

  1. How much money you’ll need to reach each goal (if you don’t know, research it or ask someone who might know)
  2. When you want to reach each goal;
  3. How much money you’ll need to save and invest each year to reach each goal.

Table 1 illustrates a simple goal-setting exercise:

Table 1: Set specific and measurable goals

Set specific and measurable goals

Assumption: Investment compounds at 6% per annum

Even if you don’t have specific life goals that you’re currently working towards, building your wealth now opens up a whole world of possibilities for you to choose what you want to do later on. By saving and investing as early as possible, you get to leverage the power of compounding interest to help you build wealth quicker. Whether you choose to retire early, pursue a passion project, or achieve any other life goal you might have in the future, building your wealth sooner gives you that freedom of choice.

Make sure that your financial goals are realistic

During the goal-setting process, be honest with yourself and assess your current financial situation to make sure that your goals are attainable given your life circumstances. Can you save as much as your specific, measurable goals require you to?

You might want to put a $70,000 downpayment for a property in 5 years, pay $550,000 for your child’s education in 18 years, and retire with $2,500,000 in 30 years. Given your monthly income and your savings capacity, are you able to save and invest enough money on a monthly basis to reach all of these goals in the timeframe you originally set? If the answer is no, and you’ve reassessed your budget and expenses, then you need to adjust either the goal amount or the time horizon of each goal. You can change the time horizon for putting a downpayment on a property to 10 years, for example, to give yourself a more realistic time frame to reach this particular goal.

Specifying your goals with a time frame and an amount that’s achievable ensures that your savings and investing plan is set up properly from the get-go. You don’t want to be setting goals that are too far-fetched that can overwhelm you, and cause you to abandon your plan when you don’t progress quickly enough to those goals.

Break down your financial goals to bite-sized pieces 

Many financial goals, especially the expensive ones, have long time frames. When your goals have such a large number and a long time frame attached to them, it can be difficult to feel motivated to start saving for something that’s so far away when you really want to go on vacation next month. After all, how much of a difference would skipping that $2000 for a month make when you need $2,500,000 for retirement in 30 years?

To stay focused and not let near-term distractions get in your way, motivate yourself to reach smaller goals that add up to your larger goal. By reframing your goals into bite-sized pieces, or yearly goals, you suddenly have something more tangible to reach, and you’ll reap the reward of feeling a sense of accomplishment when you hit your yearly savings goal, instead of waiting 3 decades to feel accomplished. Reframing how you perceive your financial goals can help you make better short-term financial decisions and stay motivated for the long haul. Here’s an example of how you can break down your long-term goals into yearly goals:

Table 2: Breaking down long-term goals into yearly goals

Breaking down long-term goals into yearly goals

Visualise and review your progress towards your goals

Once you’ve set realistic goals and broke them down to bite-sized pieces, make sure you set up a system that allows you to visualise and review your progress. By having something to look at, you can hold yourself accountable, and remind yourself of what you want to achieve.

As part of your system, determine an interval that makes sense for a check-in. Maybe you check in with yourself every 3 months, or every 6 months to chart your progress against the goal amount you planned to achieve. This is when you ask yourself if you’re honestly on track to reach your goals, or if you need to do a better job of staying disciplined to meet your monthly savings goals.

Table 3: Visualise your progress

Visualise your progress

If you are lagging behind on some of your goals, your current savings plan may not be working for you. In that case, revisit your monthly savings plan to see if you need to increase the amount saved and invested towards your goals.

Unexpected events, such as medical emergencies, can inevitably arise in life. So, before you even put money towards your goals, make sure that you have a sufficient emergency fund in place that you can draw from if and when you’re caught with an unexpected expense. Your emergency fund allows you to deal with short-term emergencies without having to put your future plans on hold.

But bear in mind that your financial goals don’t have to be static. In life, your priorities could change; maybe you might not want to buy a house anymore a few years down the line. And that’s okay! These periodic check-ins give you the flexibility to take stock and reorient your plans to fit your changing priorities. In addition, by having those savings in place, you’re already set up to change your mind if or when you choose to. You can then channel those extra savings towards other goals such as your retirement or paying for your child’s education.

Or, if your life circumstances have changed (eg: you got a new job), consider if your plan needs to be updated to account for those changes. Maybe you can start saving more each month, and can retire sooner, or buy a bigger house!

Automate your saving and investing plans

It can be easy to get distracted and lose sight of your long-term financial goals when you have to juggle many other aspects of life in the present.

To help you stay on track and not forget to save one month, automate your savings and investing plan. Set up a standing instruction to set aside part of your monthly income into your different financial goals. This way your savings plan will always be running in the background of your life, and you don’t even have to think about it.

Remind yourself of your “why” 

Finally, when you feel like giving up on your financial goals, come back to why you’ve set them in the first place. Whether you want to attain financial freedom, send a child to university, or own a home, reminding yourself of the reasons you’ve set those goals gives you the extra momentum you need to stay focused on your financial journey. Remember, the journey to attaining your financial goals isn’t a sprint, it’s a marathon, and staying the course will get you to that finish line on your terms.

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