Research shows that New Year resolutions usually fail. Why? Because resolutions aren’t clearly articulated goals. In my opinion, annual goal setting is a necessary yet arduous process.
This article focuses on the goal setting process, and financial goals in particular. Hopefully, it will inspire you to create your own set of goals for 2017 and beyond. (For related reading, see: How to Achieve Financial Success in Your Marriage.)
Begin With Aspirations and Aim High
Think of the goal setting process as a funnel. You should start with the high-level strategic dream or aspiration and then narrow it down into a particular goal. If you want to pay off your mortgage, that is a great aspiration. But it becomes a goal when you define how much debt to pay down in a particular year. Let’s suppose your mortgage balance is $150,000. Unless you have a sudden windfall, it is unlikely you will erase that debt within a single year. Rather, create a plan and define the terms. Perhaps you can set the goal to pay down $10,000 of principal by Dec. 31, 2017. Further decide if you want to make the extra principal payments each month, quarter, or semi-annually.
By aim high, I mean go outside your comfort zone. If $5,000 of debt pay down is comfortable, then $10,000 is a stretch but doable—with the proper motivation. Saying you will pay down $30,000 in 2017 is delusional, so don’t go to that extreme either. Leave your goal at $10,000.
Appreciate the Crossover
Many people assume goals are mutually exclusive. I don’t think this is the case at all; instead, there is a lot of interconnectedness. If your family and personal relationships are going well, you are probably tending to your physical, financial, and emotional health. If you cannot get motivated to achieve a weight loss goal, you may lack the perseverance to achieve a financial goal, too. To be most effective, strive for seven to 10 goals annually across all realms of life.
My parents recently relocated from St. Louis, Mo. to Florida. They are different people in Florida—stronger physically, mentally, and financially—and I couldn’t be happier for them. In fact, they just declared they are officially debt-free—mortgage, car, everything! As their daughter and now financial advisor, I find this inspiring. To get to this stage, it took them decades of hard work, determination, and planning. (For related reading, see: Don't Get Trapped in Financial Survival Mode.)
Articulate and Monitor Your Goals
Nearly everyone will agree that goals are helpful to reaching personal and professional aspirations, yet few actually write them down. Writing your goals in black and white increases your chances of success. Once you articulate them, don’t shove them in a drawer to collect dust. Similar to a financial plan, you need to evaluate progress and tweak it.
Here’s another practical example. Let’s say your financial goal is to increase business income by $10,000 by Dec. 31, 2017. You set the goal and put it aside until November. Your year-to-date business income is the same as the prior year. How on earth are you supposed to raise an additional $10,000 of business income in two months? Wouldn’t it have been more beneficial to set a goal of $5,000 additional income by June 30 and adjust the Dec. 31 goal if you significantly missed the mark?
Create Measurable, Specific Goals
To evaluate progress, your goal must be specific and measurable. Following the prior example, let’s say you started too general: to increase business income. That’s not quantifiable. Do you want to increase business income by 20% or 50% and by what date? If you set the goal for Dec. 31, 2017, consider quarterly “check-ins” to see if you’re still on track. That leads us into the next point: celebrate the victories.
Focus on the Wins, Not the Gap
As I’ve said before, transformation doesn’t happen overnight. Break the goal into small steps. If you have a total of $15,000 of credit card debt to eradicate, consider the debt snowball approach. Pay off your smallest debt balance by Jan. 31. Then focus on the next smallest balance by April 30. If you look at the big gap of $15,000, it is easy to get discouraged. Setting up smaller, incremental goals will keep you motivated throughout the debt payoff process.
Look at Failure as an Opportunity
By stretching outside your comfort zone, there will inevitably come a time when you cannot reach 100% of each goal. Rather than thinking of yourself as a failure, focus on what you did accomplish and how you can learn from this experience. Suppose you wanted to build an emergency fund of $12,000 by Dec. 31, but you only got to $10,000. Look at that! You got to $10,000! That’s wonderful in and of itself. Get creative on how to reach the $12,000 goal. Perhaps you have a year-end bonus and can allocate $2,000 of it to the emergency fund. Or boost your 2018 goal to $14,000.
Get ready to set some goals for yourself! (For related reading, see: When Is the Right Time to Pay for Financial Advice?)