You must give a lot of thought to money and finances or you will have shortfalls and problems in these areas all your life.— Brian Tracy from his book Goals!
At the beginning of your education to become financially aware, the first thing you need to do before you start planning & organising, before you build an emergency fund, before you create, monitor and stick to a spending planner, before you repay debt, before you get protection (life insurance, critical illness, income protection), before you focus on your pension, and long before you start investing, the first thing you need to do is set a financial goal or goals.
What is a goal?
I think most people understand what a goal is, but for my benefit, let me state it. A goal is something you want, which you don’t have now or you haven’t done yet. A really sexy goal, for this example only is, on Saturday morning, when I wake, I set myself a goal of cleaning the bathroom. Rock ‘n’ roll, right? Gonna live forever… in that germ free, heavily bleached bathroom.
Let’s set another goal. From today to 30th of September, I am going to run one mile a day in order to lose 3 pounds of weight.
Last one. Every Sunday evening, I will write two thousand words of a novel, which will result in one hundred and four thousand words after a year.
I think the majority of us set life goals without realising, such as cleaning the bathroom. A big portion of us set goals at work with our boss. We set goals at the beginning of the year and track them on a regular basis. Why? Well, that’s easy. Your company gives you money to do stuff. They want you to do the stuff that will help them. They want you to keep doing the stuff to help them by you staying on track, resulting in them getting stuff done by you. Elegantly put.
Oddly, I find I stick to my work goals much more than my personal goals. When I asked myself why, I discovered three reasons, which, when they were told to me ages ago, I thought the wisdom of some poor goal-training expert my employer hired for the day was chatting utter nonsense. But, in hindsight, it’s true. I stick to my work goals more because:
- I actually write them down and keep a copy of the goal
- I regularly check in/track how I’m doing against the goal
- I told one person (my boss) about the goal and feel I’ll let them down if I don’t achieve them
I want to be rich
You might have said this to yourself, or heard people say it, but how do you become rich? If you’ve said it to yourself, why aren’t you rich now? Try to answer the below questions.
How did Andy Murray win Wimbledon? How does my neighbour’s garden look so perfect? How did my employer become so successful? How did my doctor become qualified? How did England win the cricket world cup?
All of the above had a clear goal, a target, something to strive for and achieve.
Yet with money, we never set goals. Why is that? We have these pie in the sky goals, such as become rich, own a mansion, win the lottery, but nothing concrete, nothing specific or measurable. Nothing we can return to monthly, weekly, even daily and keep financially focused.
A financial goal
A financial goal is the same as a work goal or a personal goal. You think what you want. “Want” is the key word here. Once you know what you want, then you write it down, then you decide whether it’s achievable, then you figure out how to achieve it.
Example of a financial goal: I want an emergency fund of £1,000.Another example: I want to pay off my credit card balance of £500.
Other financial goals
This list isn’t exhaustive, but some things I thought of.
Repay credit card debt
Increase credit score
Build an emergency fund
Stop wasting money
Save for a house deposit
Invest in the stock market
Learn how to create a spending planner (budget)
Leave your family financially free
Buy life insurance, critical illness and income protection
Stop borrowing from friends and family
Save every month
Pay for a holiday
You get the idea, right?
Sorry everyone, I’ve gone all corporate. In the dreadful world of business there’s a concept of S.M.A.R.T. goals. It sounds rather pathetic like all the other acronyms, and it is, but actually, it’s not bad. It’s difficult sitting on this fence all day long.
Smart goals stand for:
If you Google them, or Bing them, haha, you’ll see different variations of the naming conventions for each letter, but they’re all the same.
Below is an example of a S.M.A.R.T. financial goal I did with someone I was money coaching. Their smart goal was to, “Save £2,000 by 05/04/2020 in order to begin building an emergency fund.”
Let’s do some groovy analysing here, shall we?
Is the goal specific? – Yes. It states an amount, a due date and a reason for doing it.
Is it measurable? – Yes. We can measure the amount of money relevant to the amount of time to save in.
Is it achievable? – Yes, but. This person who came to me for money coaching was dreadful with money. Yet they earned around the average UK salary, didn’t have any children or huge amounts of debt, still lived at home. So yes they could achieve it.
Is it relevant? – Yes. The person wanted to become financially aware. They were sick of living pay packet to pay packet and having nothing to show for a month’s worth of work apart from owning family and friends money.
Timebound? – Yes. Last day of the tax year, 05/04/2020.
The other financial goals the person had was:
- Repay debt (£2,500),
- Improve credit score from very poor to poor (It’s a slow process, but a good one).
Setting the goal(s)
You’ve got to find your want, whether it’s building an emergency fund, repaying debt, buying a house, retiring, whatever it is. Until you know your want and can produce a financial goal, you have nothing to aim for. It’s like getting in your car and just driving, it might be fun for a while, but you end up lost.
Staying the distance
Now that you have a financial goal, what do you do with it?
- Put is somewhere where you see it often, could be on your phone, print it off and put it in your wallet, tape it to your kitchen cabinet.
- Make scheduled appointments to revisit it. In the first two months, revisit it at least weekly. Then, if you’re sticking to it correctly, maybe reduce it to fortnightly. Monthly is too long. Remember these are short term goals, under a year. So fortnightly would mean your look at it at least 26 times in that year.
- Tell one person. Don’t announce it on social media.
- Track it. Every week, or every fortnight, track how well you’re achieving the goal, write down your progress.
When financial goals go bad
Occasionally, as you aim to achieve your financial goals, you might be not performing as accurate as you would like. There are a number of reasons for this, here are some of the common ones:
- Your goal is un-achievable in your current state. This means you’ve set your goal too high. You will need to revisit your smart goal and make it achievable.
- You’re not focused enough. This means you’re not ready to become financially free. You like the idea, like learning French, but you’re not committed enough. You maybe should change your goal. Reassess why you’re doing this. Like going to the gym, if you don’t want to go for you, then go for your family (guilt). Make your goal smaller. Maybe the size of it stops you doing it. Saving £100 is easier than £10,000. Then when achieved the smaller goal, create a second goal a tiny big bigger.
A financial emergency has happened
This is something like you lose your job, your boiler blows up, your car dies. An emergency fund will squash this and not impact your financial goal.
If you don’t have an emergency fund, yet, then there are two choices.
The first is you miss this week or this month’s contribution to your financial goal and you extend your smart financial goal by a month. Emergencies rarely happen, and often not twice in a year.
The second option is you make further sacrifices to keep financially focused on your goal. So if you drive to work and it costs £50 a month, you cycle until the next pay day. If you buy a tea and a croissant for breakfast every morning, that month you eat at home. You have a seriously frugal month. Plus, all that cycling and not eating crap will do wonders for your health. Why not keep it up and get healthy and save money? Double bubble!
No matter what happens, if you stay financially focused then you’ll weather the storm and continue to achieve your financial goal.
When you achieve that goal
There’s not many better feelings than achieving your financial goal. You worked hard, stayed focused and made sacrifices. You deserved to achieve it.
When you achieve the goal do a couple of things:
- Give yourself a pat on the back.
- For 5 minutes or so, analyse how you did it. What was easy, what was hard, where could you have improved, what would you do different now you have the knowledge and experience of doing it?
- Inform the person who you told about the goal that you achieved it.
- Lastly, either extend this goal and push yourself a bit further, such as you now save £5 more a month than you did, or make a completely new goal and use the knowledge from achieving this goal to your new one.
- Financial goals help you to stay financially focused.
- Without financial goals it is almost impossible to become financially free.
- Financial goals can be constructed using a number of methods, S.M.A.R.T. goals are a good methodology, millions of office bods can’t be wrong, right?
- Constant check in and tracking of your goals is needed, either weekly or fortnightly for short term goals.
- Make sure you tell just one person about your financial goal so that you are held accountable.