Some people think that as long as they are able to pay for their bills, setting up financial goals is not necessary. That is where they are wrong. When you have a goal in mind, it forces you to practice better habits that will lead to your improvement. It helps you live through the sacrifices that you have to make just to achieve the target that you have set out before you.
And when it comes to setting goals, you can only hope to achieve them if you plan for them carefully. There are so many life events that require financial planning and that can really boost your financial goal achievement.
A 2012 release by the NAPFA or National Association of Personal Financial Advisors revealed how much Americans need financial planning. Based on the various statistics that they have gathered, it showed that:
39% of Americans do not have savings other than their retirement plan.
40% of Americans are saving less compared to 2011.
41% of the Baby Boomer generation do not have a will.
50% of parents do not have a will.
People expecting to retire after the age of 65 have gone up to 37% in 2012. In 1991, that percentage was only 11%.
(Source: Americans Need To Understand What Financial Planning Is And How It Can Help. http://www.napfa.org/UserFiles/File/ImportanceofFinancialPlanningRelease100312.pdf)
Obviously, people are still at a loss with their finances. Considering the effects of the last recession, we cannot afford to stay this way. We have to seriously think about how we will map out our future and that means you should start setting up your goals.
Right way to create your money goals in the new year
The New Year is a great time to set up these goals. It signals a new beginning that encourages most of us to sit down and think about what we want to happen in the coming year.
In as far as New Year’s resolution goes, StatisticBrain.com reveals that not everyone is really successful when it comes to fulfilling them. In most cases, people forget about their resolutions after a few months. 45% of Americans usually make these promises of change but only 8% are actually successful in making them happen. Most of the resolutions are about self-improvement (47%), weight (38%) and money related improvements (34%).
While a lot of factors may have affected this failure, it could probably stem from the fact that some people failed to make the right goals. Sure they have said that they want to improve their skill or they want to lose weight or they want to save more. These are, in essence, still resolutions but failing to define them further can cost you to fail at your goals.
What you need to learn is how to create SMART goals. These are not just something that you use while creating your business plan. It is more important to use it when setting up financial goals.
But what does SMART goals mean? Let us break it down for you.
S is for specific financial goals
You cannot just say that you want to improve your financial standing. You will not be able to follow that because it will be too vague. You wouldn’t know where to start. When that confusion steps in early on in your resolution, the chances of you giving up on it will be very high. That is why clarity is a must. If you want to improve your finances, state what exactly do you want to improve. There are so many areas that needs improvement. It can be your savings. If it is, are you referring to your emergency fund, retirement plan or your home building fund? These are equally important decisions that you need to define in your goal.
M is for measurable financial goals
The second letter means you have to set a goal that is measurable. Apart from being specific it has to be quantifiable so you can see how much you have progress throughout the achievement of your financial goal. It will help you see if you need to revise your strategies or keep going at it. Having the indicator of your progress will allow you to foresee if you can reach your goal or not. Since this is about your finances, simply defining the number goal will be very easy.
A is for assignable financial goals
This involves knowing who will carry the burden of fulfilling this goal. If it is a retirement plan for the couple, you can divide the responsibility to contribute equally. Or if it is to spend less to lower the monthly expenses, you can assign every member of the family to help out. This will make the goal more likely to be reached if you share it with other people. You can check one another to encourage each other to finish their share.
R is for realistic financial goals
When setting goals, it is easy to set a big goal. While dreaming big is ideal, you have to keep it within a realistic measure. Low income families may want to set a million dollar savings account by the end of the year but that is just now possible with their current income. Failing to reach an unrealistic target will discourage you from reaching any type of goal. Keep this from happening and just start with a target that is within your capabilities.
T is for time-related financial goals
Lastly, you want to put a schedule on your goal. Not setting a time will only make you postpone the tasks that are needed to be fulfilled to reach your target. Put a deadline on the goal and try very hard to stick to it. You can set short or long term goals this way. It will help motivate you to act on your plans as soon as you have created them.
What not to do when setting financial plans for the future
Rising from your current income level to be a financial success is easier said than done. Nobody claimed that it is easy but having SMART financial goal will help put you on the right track to achieve them. A vague resolution is something that you will not take seriously. Your goal need to have the SMART categories fulfilled.
Let us see how a bad financial goal looks like.
Put in more savings.
Pay off debt.
Lower monthly expenses.
Now let us see what a SMART financial goal looks like.
I want to add $12,000 dollars into our retirement savings account by December 2014. To do this, I will put aside $1,000 every month. My spouse and I will have to lower our dinner dates from twice a week to twice a month.
I want to pay off 50% ($12,000) of my student loans by the end of the year. I will work extra 2 hours every week as a freelance writer to earn this amount.
I want to lower our household expenses from $4,000 to $3,500 starting January. To do this, we will bundle our cable and Internet subscriptions, my spouse and I will brown bag our lunch and we will require our kids to help around the house to lower service fees.
As you can see, SMART goals put in more details that will help you take that first step into achieving your target. It has suggestions on what you can do to make it possible. That is how you should set up your financial goals.