Goal setting is vital to the success of any project, be it a DIY project around the house, fitness or finance, if you don’t have goals, you have no idea where you are heading.
There are several key areas around financial goals that are vital – as with every objective or goal set, that they are S.M.A.R.T. A bit more about the specifics of these key areas are outlined below.
Specific
A meaningful financial goal is “I want more money”, it is not specific enough; it can’t be benchmarked in terms of performance or achievement, and really, it’s a waste of time. However, stating “I want to pay down $15,000 of my personal debt this year” is specific.
Being specific means you can either achieve the goal, or you do not – which is not terrible; you just need to iterate your plan so you can reset, refocus, and achieve it within the next defined date.
Measurable
Finance by nature is about money, which is quantifiable and measurable. A goal that is not measurable, is not really a goal at all. For example, “By January for my portfolio of shares to have investments in at least five different ASX listed companies”.
This is measurable, did you have five or more in January – then you achieved it, if not, then you failed – it is that simple.
Achievable
We touched on this in previous chapters, that as a goal, it needs to be achievable, or you are essentially setting yourself up for failure. For example, “I want $1 million in my savings around by December next year”. Which is fine if you can achieve it, but if you earn $50,000 + super and have $5,000 in your savings account, with a large inheritance or winning Powerball, there is very little chance that this goal is achievable.
This section is about working within your limitations, and this is something that you and your financial planner can effectively work on together.
Relevant
Within your financial goals and objectives, they need to be relevant. For example, “wanting to purchase a jet ski by June next year”, although not entirely relevant to your finance success, is indeed relevant as part of your financial plan, as you need to put contingencies aside to pay for your new jet ski.
However, if your goal is to “find a new boyfriend/girlfriend”, quite clearly is not a relevant objective, no matter how high it ranks on your personal goal or objective ladder.
Timely
When setting your personal financial goals, determining what your short-term, mid-term, and long-term personal financial goals are is the first step.[1]
Short term may be 6-12 months, it may include a holiday, paying off a credit card or just hitting a milestone in your savings account – such as “having $10,000 in a savings account available for investment in shares by December”.
Mid-term is usually between 2 to 5 years and will be more strategic than your short-term objectives, however just as important. Your short-term objectives may be independent of your mid-term – such as saving for a holiday – or they maybe intrinsically linked, such as that $10,000 you saved, being turned into $25,000 by year 2, thanks to investment and further savings.
It also may be around purchasing an investment property, setting yourself up with a self-managed super fund (SMSF) or similar.
Finally, let’s explore long term objectives
These are setting up retirement savings, trust funds for your children, investment portfolios or paying off your house by a defined date. Often lofty and in many instances most people don’t feel they even need to start thinking about these areas until they are well into their 50’s – which is very wrong and dangerous.
Goals and objectives are a vital part of everyday life, they allow you to benchmark your performance, understand if you have achieved or failed to achieve what you have set for yourself, but more importantly, it will force you to become habitual in how you review, plan, save and invest – which over the long run will have nothing but a positive impact on your financial security, and ultimately your overall health & wellbeing.
[1] https://www.moneymanagement.org/credit-counseling/resources/how-to-set-and-keep-personal-financial-goals