Defining goals is an important step along the way to achieving financial wellbeing. There are strong links between goal setting and success. But how exactly do you go about it? We offer some advice on how to set achievable financial goals to set yourself up for a secure future.
The link between goals and success
Science proves that there are strong links between setting goals and success. That’s why defining clear financial goals is an essential step on the road to achieving financial wellbeing. Failing to set tangible goals is often the missing link between a desire to save and invest and taking active steps to do so.
But how do you do it?
Defining short, medium and long-term goals
It will help to split your goals into short, medium and long-term goals. While we are all different, there are recurring themes when it comes to financial planning. We’ve listed some of the most common goals in each category below.
Common short-term financial goals
These are goals that you can achieve relatively quickly, usually within 12 months. The most common short-term financial goals are:
- Save an emergency fund
- Pay off unsecured debts
- Protect wealth with insurance
- Establish a comprehensive estate planning strategy
- Start saving into a pension
Common medium-term financial goals
Medium-term goals will generally take anywhere between around one and five years to complete. Some common ones are:
- Pay off a student loan
- Save for a deposit on a house
- Budget efficiently to optimise saving
- Increase contributions into a company pension
- Diversify your investments
Common long-term financial goals
Long-term goals take longer to achieve – think five years or longer. Some could even take decades. Patience is required to realise these but the pay-off is huge. Here are some of the most common long-term financial goals:
- Achieve financial independence
- Save enough to retire comfortably
- Take early retirement to pursue hobbies or spend time with grandchildren
- Be able to choose when and where to work
- Pay off a mortgage
- Maximise contributions to retirement accounts
- Fund a university education for your children
Take some time to think about which of these goals you want to achieve, and whether you have other financial objectives not mentioned here.
Then write them down. Research has proved that writing goals down increases your chances of achieving them.
Now make your financial goals SMART
The SMART model of goal setting is well known. It means making sure that your goals are:
Specific
Measurable
Achievable
Realistic
Timely
Using the SMART method of goal setting provides a structured framework for your financial plan and significantly increases the likelihood of achieving your objective of financial wellbeing.
Let’s take an example of a specific goal and show how the SMART method works.
The goal: Save an emergency fund
- Make it specific: The goal ‘save an emergency fund’ is too vague. Set a target figure of exactly how much you want to save.
- Make it measurable: Set up a dedicated account for your emergency fund which will enable you to easily track your progress each month against your target amount. At any time you will be able to compare the current balance against your goal and know exactly how far you are from reaching your goal.
- Make it achievable: Your goal must be realistic. If it is over-ambitions, you will feel demotivated and may give up. Set a lower target or increase your timeframe to ensure that you stay motivated and make meaningful progress at all times.
- Make it relevant: The size of your emergency fund should relate to your income and expenditure. We usually recommend an emergency fund of six months’ worth of your regular fixed costs.
- Make it time-bound: Set a deadline within which you must save your target amount. This will keep you focussed, encourage you to prioritise saving and help prevent procrastination. An emergency fund is a short-term goal and you should be able to achieve it within 12-18 months.
Once you’ve performed a SMART audit on your goal, it will look something like this:
Save an emergency fund of $20,000 by the end of 2024.
Take each goal in turn and perform a SMART audit. It may take some time but at the end you will have a set of clear, actionable, and attainable financial goals that are closely aligned with your values and priorities. This will increase your motivation, help you focus, and maximise the likelihood of success.
Help with defining financial goals
We understand that this process can be overwhelming for many people. The good news is that you don’t have to struggle alone.
Part of a financial adviser’s job is to help clients clarify their long-term financial goals and our advisers are brilliant at it! They have the experience and tools to help you define your goals AND they can advise on exactly how to achieve them with a bespoke financial plan tailored entirely to your unique circumstances.
If you’d like to discuss some SMART long-term financial goals with an experienced professional, get in touch.
Get on board with February’s task in our financial wellbeing challenge: defining your financial goals.
Check out our suggestions for financial goals that make sense in the short, medium and long term.
And learn how to make each goal SMART so that you stay motivated and make meaningful progress.
If you need help, our experienced team of professional advisers are on hand to provide assistance with defining your financial goals. Get in touch!
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