Most of us would like to, “spend less” or “save more” but we need to be much more specific if we want to set effective goals. When I work with clients to establish what they want to accomplish, I think in terms of creating goals that are realistic, quantifiable, and have a timeline.
Realistic goals can help you stay on track because you’ve set a manageable goal so you’re less likely to get discouraged and give up. At the same time the goal should challenge you and help you rise to the occasion . . . it’s a fine line! Fortunately, revising goals is part of the process too.
Your goal should also be quantifiable. With financial goals this usually means a dollar amount. Then you want a timeline for when you will accomplish your objective. Tracking incremental progress within in your timeline will create a sense of urgency, which is particularly important with long-term goals. You might need to make adjustments so that your goal stays realistic or challenging enough and tracking incremental progress will help you do that as well.
Here is an example: Bob wants to pay off his sizeable credit card debt of $7,000. He would like to pay this off in one year, which is a total of about $600 per month. He came up with this timeline because he took the time to organize his finances. He examined his spending (and ways he can cut back) as well as look at other goals such as contributing enough to his 401(k) to get the company match. Bob realized that $600 a month for one year was attainable (although, it would take some sacrifice he felt it was worth it). He was excited to make a strategy towards becoming credit card debt-free!
He began by applying for a zero interest credit card for 15 months and transferred the balance to that card. Bob then set up automatic payments because it is less work for him each paycheck and he isn’t tempted to spend that money elsewhere.
Additionally, Bob and I discuss the importance of establishing an emergency fund that will eventually include 6 months of expenses ($24,000). When unexpected expenses arise, Bob will have this resource and won’t have to put those expenses on a credit card. This is a separate but related goal that will strengthen his over all finances.
Creating goals that are tailored to your particular circumstances as well as making them realistic, quantifiable and giving them a timeline will give them the detail you need to be effective. Also, be sure to add motivation. Who will offer support along the way? How will you celebrate or reward yourself when you accomplish your goal?