Happy New Year!
With a new year, comes time for New Year’s resolutions. This is a bit of last minute from my side (but better late than never). Thus, let’s get to the business straight away. Today I want to introduce you to the difference between goals and resolutions, why it is important to set financial goals and what are SMART goals.
January 1st will be the time when most of us will decide to eat healthier, exercise more and lose weight. The study by Fidelity Investments shows 32% of Americans are considering a financial resolution for the year ahead. And the top 3 financial resolutions are:
- Save more (48%)
- Pay down debt (29%)
- Spend less (15%)
It all sounds good, doesn’t it? And the hopeful voice in your head says: “Bright future is ahead of you!”
But the reality hits hard. The harsh truth is that by the end of March, most of us will be living our best life forgetting about the resolutions we made at the beginning of the year. The statistics conducted in the US show that only 9.2% of Americans will keep up with the resolutions set at the beginning of the year; however, the statistics are a bit better for financial resolutions.
RESOLUTIONS vs. GOALS
I’ve never been a fan of a New Year’s resolutions and always been more financial goal setting oriented. What’s the difference between a resolution and a goal, you’d ask?
As stated by Melissa Brode in Proud2BMe:
Resolution: a firm decision to do or not to do something
Goal: the object of a person’s ambition or effort; an aim or desired result.
Do you see why I prefer goals to resolutions? The difference that makes it count is AMBITION and MOTIVATION.
We tend to think about resolutions as “all-or-nothing” deal (one of the main reasons why we usually fail to stick to them. Been there, done that). Though goals are usually more methodological and better motivated.
As greatly summarized by Code of Living, goals:
- Motivate you to achieve your dreams;
- Give focus;
- Allow you to measure progress;
- Help to overcome procrastination.
TYPES OF FINANCIAL GOALS
There are 3 types of FINANCIAL GOALS:
- Short-term (less than 3 months to achieve);
- E.g. pay off my EUR 1 000 credit card in full or start investing in p2p platforms, like Mintos;
- Intermediate ( takes 3-12 months to achieve);
- E.g. save EUR 8 000 to start investing in stocks/real estate.
- Long-term (takes more than a year to achieve);
- E.g. earn enough from side hustle to pay for all expenses.
I personally believe it’s best to set a long-term goal that drives you towards your dream and creates all the positive vibes in your life. Yet prepare an action plan of short-term and intermediate goals that will move you towards your long-term aims.
Last year I decided my goal is to purchase an apartment in the next 2 years. 2 years is a long time. Knowing the nature of a human… I would be panicking at the end of 2019, understanding that I have no savings, no understanding of any bank and real estate offers and no actual budget (sounds like a good plan?… NOT).
Thus, I created a timeline detailing things that I want to have achieved by the specific time frame. For example, by March 2018 I had to decide whether I want to have old/renovated or new real estate project and have a list of potential options. Having a list of potential options gave me an understanding of the approximate necessary budget for the advance payment. Hence, my Dec 2018 goal was to save EUR 10 000 as a down payment for the apartment (by having an action plan of short-term goals on how to do that as well, of course).
What are the benefits of having such a detailed plan?
- You have accountability for what you have achieved;
- It’s always nice to celebrate the small victories (raises the glass of champagne with a celebratory toast)
- And the best of all- you know where you’re moving
SMART METHODOLOGY FOR GOAL SETTING
SMART methodology is a great way of defining your goals. SMART is an abbreviation for Specific, Measurable, Attainable, Realistic and Timely (smart, right?).
Why do I think this is the way to go? Compare these 2 sets of goals below:
| General goal | SMART Goal |
| I want to buy an apartment | I will save EUR X monthly until Dec 2019 so I can meet the 15% down payment for an apartment in location Y. |
Which gives you the more attainable, yes-I-can-do-it vibe? I think we will both agree SMART is the way forward.
Let’s focus on SMART traits to define your financial goals:
- Specific: What do you want to achieve? Describe your goal in detail.
- As a guideline try to answer the 5 W’s:
- What are you trying to accomplish?
- Why this goal?
- Where will you achieve this?
- Who is working on this goal? (I am, see anyone else here?)
- Which limitations should you consider?
- As a guideline try to answer the 5 W’s:
- Measurable: How do you know that your goal is achieved? What is your target?
- Achievable: Good start is going for a positive change compared with your current state. My advice here – RESEARCH. Check your budget to see whether the goal is actually possible. You might have to increase your time frame or lower the target amount (or hope for a miracle), but fingers crossed you will get to your goal. Yet, don’t be scared to push your limits, dare to dream.
- Realistic: the right hand of “achievable”. Make sure you have the necessary skills or resources available to achieve your goal.
- Timely: By when do you want to achieve your goal?
WRITE IT DOWN!
Lastly, WRITE DOWN All YOUR GOALS! I cannot stress this enough.
Mark Murphy’s study called “The gender gap and goal setting” showed both men and women need to do a much better job at writing down their goals. And that’s not it! People who write down their goals are 1.2 to 1.4 times more likely to achieve them! That’s shocking! Though if nothing else helps, then at least the good ol’ pen and paper approach works in your favor.
Hopefully, this guide will help you to define your financial goals for 2019! Though, if you are not sure, a list of top 5 financial goals to set for 2019 will follow soon. Wish you all financially free 2019 and see you soon!
If you feel I’ve excluded some topics that are important to you, feel free to raise those either in the discussion board or write to me @ ieva@couldbemore.com at any time and I’ll be glad to help you or prioritize the content to help as much as possible!
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