Before I can define my financial goals for 2007, it’s nice to review the basics. What are goals? I think Etta Mae Westbrook, a “family economics” professor, explains it well [pdf]:
- Goals state what you want to do or achieve. Goals will give your life direction. Financial goals will help you to determine where your money will go.
- Goals should be an extension of your values. If the goals are not related to your beliefs about what is important and good in life, the possibility of your achieving the goals is unlikely. If you do achieve a goal not related to the values you hold, you will probably feel unrewarded and dissatisfied.
- Goals need to be specific. The goal, I want lots of money in the bank, has little meaning. Is “lots of money” $5,000 or $50,000? When will you know you have “lots of money?” Write each goal in specific terms. Write the goal in terms you can measure.
Goals can be long-term, but they don’t have to be. The goals I want to set for myself this week are for one year from now, a short time frame. They should be in line with my longer term goals, which I’ve never really outlined here before.
Many people, especially those with business degrees, have heard this before: goals should be SMART; that is, Specific, Measurable, Attainable, Relevant, and Time-bound.
Attainability, or realism, is an important piece neglected by Westbrook’s article. I could, for example, set a goal to earn $1,000,000 in income next year, but what would be the point? It is extremely unlikely that will happen, and I’m not being a pessimist. That’s just the way it is. Montana State University has a short article about setting realistic goals.
Setting realistic goals allows success, and success breeds more success. The goals shouldn’t be so realistic that they’re easy, though. I like what Jim from Blueprint for Financial Prosperity has done: define regular goals and stretch goals. This allows you to take into consideration many unpredictable variables.
I also like the Setting Financial Goals series on the new blog, Personal Finance for Students and Fresh Grads.
I promised that I would publish my goals by the end of the week, which happens to be New Years Eve. I’m still working on them and time is running short; let’s see if I can keep the first 2007-related promise to myself.
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I think stretch goals are key and they should be attainable yet difficult to do so. That doesn’t mean that your “regular” goals should be a cakewalk though, it’s about striking that fine balance. I see regular goals as things I want to make sure I accomplish as a group and stretch goals as those that are attainable but require a significant amount of additional effort. You don’t want to hit a stretch at the cost of hitting a regular.
I’d like to emphasize the importance of considering values in setting goals.
My initial goal setting attempts did not integrate values and focussed purely on monetary achievement.
When integrating values several things happened:
1. I identified important non-monetary goals (what good is money without a loving spouse to share it with?)
2. Identified additional monetary goals derived from my non-monetary goals
(vacation budgetting, date with wife budgetting, etc…)
While creating my life-long financial plans it also became apparent that non-monetary goals become even more important drivers of goals; i.e. what do you want to do for your children’s wedding, education, where do you want to do in retirement?
Ultimately even non-monetary goals have costs – if not in money, in opportunity costs.
Regards,
maingourway
PS Here’s a link to my goals for 2007:
http://makingourway.blogspot.com/2006/12/financial-goals-for-2007.html
That SMART concept really works…but unfortunately most people don’t follow it for goal setting. Especially the “attainable” part.
Totally agree with Jim there in the first comment…goals should be attainable yet “challenging”.
Also, it helps to ask “why” each time you set some numerical target (monetary or non-monetary). Most people will usually get bogged down by the numbers race and quickly forget the big picture.
Thanks for the mention! I appreciate it.