As you watch bowl games this New Year’s Day, you might say to yourself, “This is going to be our best financial year ever.” You promise yourself that this year is going to be different. You think through past mistakes, and as you resolve to change, you set a bevy of financial goals for the coming year. The next thing you know, 364 days have passed, and mediocre to terrible results are staring you right in the face. But why?
The mechanics were all in place. You accepted responsibility for your past inaction. You resolved to change. You even set steadfast financial goals. So why didn’t you succeed?
It might be because you had the wrong time frame for your goals. When you set year-long financial goals, especially when you don’t measure progress along the way, you risk getting off-track with no chance to get back on track. Shorter goal time frames allow you to focus your efforts toward a small number of very important goals, which will ultimately lead you down a healthy financial path.
You can certainly start the process with year-end goals in mind, but you’d be wise to work backward from those goals. For instance, if your long-term goal is to save $10,000 in a given year, it makes the most sense to set your first goal to save $834 in January. When your goals reach too far into the future, you create room for excuses and ultimately let yourself off the hook.
If your goal is to run a marathon in five years, you better hope that you start running some 5Ks along the way. And you’d be better served in making the 5Ks your short-term goals, and then expand your goals up to meet your marathon goals.
Additionally, you should only set three financial goals per month. We only have so much focus and energy that we’re willing to put toward our financial lives, and if you set 15 goals in a single month, then your effort, focus and energy will be spread too thin—making it less likely that you’ll accomplish any of them. A reasonable set of goals for a month would look like this:
Goals for January:
1. Save $834 by January 31
2. Run credit report to check status
3. Reduce dining-out average by $75
As you can see, these short-term goals are very specific. You’ll notice “save money” or “spend less on food” weren’t on the list. The point of financial goal setting is to get your brain to wrap itself around the idea of specific financial progress. You don’t allow this to happen when you’re vague and unintentional.
Furthermore, when you set financial goals, it’s important to ensure that you’re able to measure whether or not you accomplished those goals. Take a look at some poorly written financial goals:
Goals for January:
1. Put money in savings
2. Care more about my credit
3. Spend less on food
See the difference? The second set of goals are far too vague and are difficult to measure. If these were your goals, it would be tough to actually evaluate if you had done a good job at the end of each month. This is a problem. Your goals must be crystal clear, as should your evaluation of said goals.
This is especially true for paying down debt. While “pay down debt this year” seems like a great goal, it really isn’t.
Instead, you should go for “pay down my Visa by $800 in January.” Short-term goal setting forces you to re-evaluate your habits and progress every 30 days or so. This will keep you on track—and have you achieving more than you’ve ever achieved before.
Peter Dunn, aka Pete the Planner, is an award-winning financial mind who has authored 5 books, hosts the popular Pete the Planner radio show and travels around the country offering financial education. His signature wit will have you laughing as you learn. You can learn more about him at www.petetheplanner.com.