Everybody likes to daydream. Some about retirement, an unforgettable vacation, or their perfect home. Whatever your dream is, you can do it! You just need to make it a goal.
Goal setting is the foundation to your success. And in finance, goal setting is especially important in keeping you on track on the journey of financial wellness.
What are financial goals?
Financial goals are objectives or milestones that you want to be able to do with your money at a specific time. They can be a purchase, a number, or something more.
There are two types of financial goals:
- Paying for a trip to Hawaii
- Remodeling your kitchen or bathroom
- Buying a Peloton
- Earning through a side hustle
- Maxing out your retirement account
- Owning a vacation home in Arizona
Picking goals for investing by age
Choosing appropriate goals for investing can seem overwhelming when you’re just getting started. Although each investor deserves the tools and freedom to follow their own path, there is nothing wrong with learning by example. Here are some common investment goals by age:
Investment goals in your 20s
Most investors will say their biggest regret is not starting earlier. Your 20s can be a great time to start saving and investing. Set up savings accounts like emergency funds and start contributing to retirement accounts. If your employer offers a match, consider contributing the maximum to take full advantage of the benefits.
Investment goals in your 30s
Budget carefully. Stick to your plan as you chip away at debts and prioritize retirement savings.
Practice exercising your willpower by doing away with unnecessary expenses. Determine how much you need to invest now to retire at your desired age. Focus on the long-term.
Investment Goals in your 40s
Keep eliminating debt. Most people start saving for homes and their kids’ college funds if they have not already.
Investment Goals in your 50s
At this point, you qualify to be eligible to make catch-up contributions to retirement plans. Consider your timeline for retirement, do you need to shift some of your investments into more short term and less volatile assets?
Investment Goals in your 60s
Retirement planning should be among your primary goals for investing. You are close to the finish line, so plan more conservatively to sustain your wealth.
Estate planning questions can be tough to answer, but there is no better time to ask yourself how you want to handle your estate’s disposition, life or disability insurance, and potential long-term care needs. Since your investment plan can power all of these retirement goals, it is critical to devise a strategy with the necessary staying power.
Why should you set financial goals?
Knowing your goals helps frame your thinking. It gives you long-term vision and short-term motivation. It helps you organize and prioritize, which leads to planning – the most effective way to achieve your goals.
The three types of goals:
This is the actions or process of performing. Related to your habit or plan, the process is how you get there.
Example: contributing $500 to your M1 IRA each month.
This is measured and based within your personal standard. You control your performance, and you lead the decision-making.
Example: consolidating your retirement accounts into an M1 IRA. Bonus: compare your portfolio performance to an appropriate portfolio benchmark to get an idea of how your portfolio compares to the broader stock market.
This is based on a target that may include external forces.
Example: hitting a certain dollar amount in your M1 IRA.
How to set financial goals
While having goals in your head is the fun part, setting them is the important part.
“If you fail to plan, you are planning to fail.”Benjamin Franklin
You’re smart. Your goals should be too. Setting SMART goals is an effective and organized way to think about goals. They are Specific, Measurable, Achievable, Realistic, and Time-based.
At M1, we use SMART goals all the time. It’s one of the frameworks we use to achieve our goals and create the best possible product and experience for our clients.
Below is an example of a SMART goal for someone looking to buy their dream home:
In order for a goal to be effective, it must be specific. It should tell you what needs to be accomplished and who is responsible.
Example: I will save $60,000 for a down payment on my dream home.
Quantifying your goals makes it easier to track progress. It lays out clearly what you have done and what still needs to be done. Measurable goals are both rewarding and motivating.
Example: I will need to save $1,000 a month for the next 60 months to have $60,000 in five years.
While setting high goals is great, they should be achievable. Make it challenging but make it attainable.
Example: My current budget makes this attainable.
Before setting any goals audit your finances, calendar, and life to check if the goal is possible in the first place.
Example: According to my income and expenses over the past year, I should achieve this goal.
Placing your goals on a timeline holds you accountable. And hitting those deadlines feels great. It also lets you see the full scope of your plan.
Example: In five years, I will be a homeowner.
Three things to remember:
- Don’t confuse a financial goal with a plan. The goal is the end result. The plan is how you’ll get there.
- Broad goals give you the big picture, but the action is in the details. Be specific with your goals. Translate these objectives into number-based terms to maintain a more realistic perspective. Using an example from above: Remodel your kitchen using a budget of $24,000 over three months.
- Not all financial goals fall into the category of SMART goals. Goal setting is different for different people and projects. However, SMART goals serve as a great example of how to think about goal setting. Every goal should have a framework.
Making your big goals, small
Staring at a big goal can be stressful. It may cause doubt in your ability to achieve it. If it’s a long-term goal, it may feel like forever until you get there. These feelings are why making your big goals small is so important.
Breaking your big goals into multiple mini-goals over time can make the feat feel a lot easier. It also feels good along the way as you complete multiple mini-goals.
Consider retirement as a goal. That may feel like a ways away. Now break that up into maxing out a retirement account every month. Your overall goal is retirement, but your mini-goal is $500 a month to your specified retirement account. The mini-goal feels a lot more achievable and feels great every month when you do it. Do this enough and you may reach retirement with a generous amount to enjoy. It’s the tiny gains that lead to victory.
While having a goal is a step in the right direction, goal-setters need to practice accountability to increase their chances of achieving.
Holding yourself accountable
Write your goals down. You are 42 percent more likely to achieve your goals just by writing them down.
Once you have your goals written down, make sure they are stored in an available and seen every day. An example would be on a pinboard above your desk. Seeing your goals every day will serve as a reminder of where you are and where you need to go in achieving them.
Writing your goals into your calendar can make a big goal feel and look smaller. Break the goal up into sections. This way, you’re achieving something every week rather than working towards one big picture.
Having others hold you accountable
Share your goals with your friend, business partner, or significant other. Being open and honest about your goals with others can help you succeed. Your partner may be able to provide helpful feedback or clarity within your goals. Plus, discussing your goals and sending progress reports on a regular schedule will show you exactly where you are in your goals.
Create a goal-oriented group. Just like a book club meets once a month to discuss the latest Stephen King novel, a goal-oriented group could meet once a quarter over coffee or dinner to discuss their progress towards their goals. Having the pressure of others holding you accountable can be a fantastic motivating factor in achievement.
Make your goals a reality
So, as you set your goals into reality this year, remember the following:
- Determine whether your goals are short or long-term
- Factor in age
- Make them SMART: Specific, Measurable, Achievable, Realistic, and Time-based
- Practice accountability
You can do this!