Saving more money is not an objective. It’s a wish. February is a well-tried at wishing.
If financial goals don’t work out like you’d hoped, it doesn’t mean you’re lacking in motivation or discipline, because most goals simply fade away a few weeks after they are set. That the goals are general and can’t be acted upon. With no set number, no time limit, and no specific action or direction, there’s nothing to restrain from when life gets crazy, and it always does.
Thankfully this is a problem that can be solved, and it turns out it is quite easy to do so.
Why Vague Goals Almost Always Fail
Over the years, psychologists Edwin Locke and Gary Latham studied what made goals effective. What they always found is that specific goals with specific challenges and deadlines yield much better results. Your brain has nothing to go on when you say “I want to be better with money. I want to save $4000 by December by saving $340 per month” has a clear target, a timeframe, and a clear action.
This is no longer a theoretical concept. That’s why eating healthier is not often a solution and cooking dinner at home four nights a week is more often a solution. The same holds true of money.
Short-Term vs Long-Term Goals – Why You Need Both
In this video, you will learn why it is important to have both short term and long term goals.
Short-term financial objectives are those you would like to see in the next year. Creating an emergency fund of three to six months’ income. Making payments on a particular credit card. Saving money for vacation. These goals are attainable and urgent, making them easier to be motivated about.
Long term goals are things that are 5, 10 or 20 years in the future. A house deposit. A comfortable retirement. Financial independence. These goals are huge but so far in the distance that they don’t seem to be real on a Tuesday morning when you’re buying something. That is why it is better to have long-term goals that can be broken down into short-term goals, which will keep you focused on how you are progressing.
It’s a great idea to write three financial goals: one for one year, five years, and 10 years. Your immediate focus is on the 1 year goal. The five and ten-year goals provide background on the significance of the short-term decisions.
The SMART Framework – Made Actually Useful
The term SMART goals is no new term. Specific, Measurable, Achievable, Relevant, Time-based. It’s business-speak, but in the world of personal finance it’s quite useful.
Here is what the same goal will be like with and without:
Without: “I want to pay off my credit card debts. The effect of the “with” scenario is that the person would end up paying off their $3,600 credit card debt in an extra $300 per month over the course of twelve months, beginning this payday.
The second edition contains clear instructions and tells you when to begin and when to end. Also, it will be obvious immediately whether the number is realistic or not, and if it is not, you can make the adjustment before you actually fail, instead of after.
Prioritise – You cannot do everything at once!
Many people have the error of trying to make too many decisions about financial priorities at once. Debt Clearance, Savings, Investments, Holiday, Car Purchase all fitted into one. The outcome is typically a very shallow focus on each goal and no real progress on any of them.
Instead, it is better to create a list of your goals, prioritizing them by importance, and tackle the most important one or two first, then move on to the next one once they have been accomplished, or when they are well on the way. If someone is just getting started, the order of priorities is usually something like this: They first try to save the small amount of money in their emergency fund, typically $500 to $1,000. Second, settle the debt with a high-interest rate. Third, pay into the emergency fund until you have three to six months of expenses saved. Fourth, start investing. Fifth, other goals.
It is not a strict rule, but it will help to avoid the paralysis of doing too much, but very little.
Make It Automatic, so Willpower Isn’t Required
The very best thing most people can do to get closer to their money goals is to stop making decisions about money. Arrange for automatic savings to a savings account on the day of your payday. Make an automatic additional payment on a loan. Set it to “autopilot.
This is a great idea because it eliminates the necessity to make a conscious choice to follow through each month. Motivation fluctuates. Circumstances change. Automatic transfers don’t. Automated saving is more consistent over the course of a year than manual saving is.
Review and Adjust Every Month
A financial goal set in January and never looked at again until December usually doesn’t end well. Things change, money is needed, income is altered, priorities are different. If a goal is clearly working well for you in January, it may need to be tweaked by April, which is fine as long as it’s a goal you’re aware of needing to tweak.
The key to creating goals that stick is to have a fifteen-minute monthly review, see if you met your goal for that month, and if you did, a celebration, if you didn’t, a change.
How to Catch Up.How to Fall Back
We’ve all missed a financial target at some point in our lives. You get a car repair, a hectic month gets in the way, and a sudden bill comes into your way. It’s the people who make it to their goals who didn’t see failure when they fell behind.
When missed, a month of class is made up the following month, if possible. If your goal was unrealistic, then you make it more manageable. It is not about having a streak of 100% no failures – it’s about getting better over time.
The Bottom Line
Financial Goals Work Are specific, having a real deadline and are broken down into small monthly steps you can take. It’s not about the motivation, it’s almost always about clarity and structure.
Pick one goal that genuinely matters to you. Make it specific. Automate what you can. Check in once a month. That four-step process, repeated consistently, produces more financial progress than any complicated system.
Frequently Asked Questions
How many financial goals should I have at once?
One or two main goals is usually the most effective. Having too many spreads your focus and money too thin for any of them to move meaningfully. Focus on your highest priority first and add more once the first is on track.
What is a SMART financial goal?
A SMART goal is Specific, Measurable, Achievable, Relevant, and Time-bound. Instead of “save more money,” a SMART version would be “save $5,000 for an emergency fund by December by setting aside $420 per month.”
What should my first financial goal be?
For most people starting out, building a small emergency fund of $500 to $1,000 is the most useful first goal, since it protects you from needing to take on more debt every time something unexpected comes up.
Disclaimer:
This article is for general informational purposes only and does not constitute financial advice. For guidance specific to your situation, consult a licensed financial adviser.
