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6.6 Financial Goal Setting

 

Goal-Setting
Think About Your Goals. Financial goals are the specific things you want to do with your money within a certain period of time. Goals give you purpose for the way you will spend your money today and tomorrow. Goals give targets for different periods in the future.

Short-term goals can be done soon. Perhaps in a week or a few months, but no longer than a year. Examples: buy new clothes, save for a holiday.

Intermediate goals can be accomplished in one to five years. Examples: buy a new car, pay off debts.

Long-term goals look ahead five to ten years and longer. Examples: buy a house, put children through college, retire.

To be effective financial experts recommend that goals be in writing and be S.M.A.R.T.

Specific. Set goals you can clearly name. For example, save for a new TV, not just to save.

Measurable. Determine the amount of time and money it will take to reach them. Mutual. If you share money with other family members, goals that you agree on will be easier to achieve.

Attainable and Achievable. Given your financial situation, the amount to set aside needs to fit within your overall budget. Goals set too high can be so frustrating that you give up your plans.

Maybe it is impossible to save £100 a month right now; adjust your time line and try for £25.

Realistic. You may need to be more practical about the goal you have set. If a new car is beyond your means, would a used model meet your needs?

Relevant. Make sure your goals fit your needs and situation.

Time bound. Set a specific target date (for example, NOT “spring of 2012” BUT April 16, 2012).

Trade-offs. What are you willing to give up to achieve this goal? What obstacles will you need to overcome? The “prize” (goal) needs to be worth the “price” (what you must give up or delay), or you will find it difficult to reach your goal.

More Thoughts on Goals. You probably have some ideas about the things you want in the future. An advantage of setting goals is that you have something to work toward. People can get so caught up in day-to-day problems they end up accomplishing very little toward intermediate goals and long-term goals. A lack of financial planning can mean problems sometime in the future.

A goal may require resources other than money to achieve. Your resources include time, talents, and abilities. To achieve some goals you may decide you need to earn more money; and to earn more money you may need more training or education, which requires time and talents, as well as expense.

EXAMPLE

Goal: Emergency Fund (a sample)

Target Date

Total Cost

Amount Already Saved

Amount to Save Each Month

(25 months from today) Apr. 16, 2012 £500

3 months’ expenses

(up to 6 months’

expenses desirable)

£100 £500 – £100 = £400

£400 ÷ 25 months = £16

Obstacles to overcome:

• other demands for current expenses

• other goals and priorities

• current spending habits

• limited amount of money coming in each month

• an emergency fund has not been a priority before

• defining what is an emergency

Step 1: Save all loose change for the emergency fund.
Step 2: Use coupons and put savings into emergency fund.
Step 3: Pack lunch at least twice each week and put savings in fund.
Step 4: Direct deposit £100/month into savings account.

Now try to set your own SMART goal using the blank worksheet.