As featured in The Wall Street Journal, Money Magazine, and more!
     

Take Control of Your Finances Part 7: Set Goals

This article was written by in Planning. 9 comments.


Last month, I began writing about the process of taking control of one’s own financial condition. It’s common to outline any process by describing a series of steps, and that is the form I have chosen for writing about this particular process. The steps I’ve described roughly follow my experience as I learned to take responsibility for my money, or lack thereof.

Most recently, I wrote about step 6, getting out of debt. Eliminating the money you owe to other people and companies is a process in itself. Although I’m describing this process of a series of steps, it is not necessarily necessary to wait until one step is completed before beginning the next. This next step is a good example.

If you have debt, you can begin the next part of the process, setting goals, before you finish paying what you owe. You might believe it’s late in the process to start talking about goals, since you may have heard somewhere that it’s “wrong” to attempt to start a process without clearly defined targets. I disagree. No matter where you are going, everything I’ve written about so far in this series applies in the same way.

At some point, it’s important to ask yourself why. Why bother taking control of your finances? Why focus on saving and investing as much as your income as possible? Why think about ways to earn more income? The obvious answer is to grow your net worth. It can be a challenge to find a deeper answer, but usually there is something.

SMART goals are not so smart

If you’re involved with business management, you’ve probably heard about “SMART” goals. I’ve written about the “SMART” concept on Consumerism Commentary, most recently when I formed my financial goals for 2008. To be “SMART,” a goal should be specific, measurable, attainable, relevant (or realistic), and time-based. For example, earning $10,000 in sales commissions during December could be a “SMART” goal for someone.

Forget about “SMART.” It focuses on nothing that will help you yet. Rather than trying to determine how much money you want to have, start thinking about what you’d like to accomplish within your lifetime. Don’t be specific and don’t concern yourself with whether the goal is attainable. A good life goal will set you on a journey, and the journey is more important than the goal itself. On this journey, it’s common to discover new aspects of yourself, and these aspects will sometimes encourage you to change your goals. That’s nothing to worry about.

Your goal should be less like one a business might have and more like a mission or a vision, though it doesn’t have to be lofty. Here are a few examples.

  • Help alleviate global hunger and poverty
  • Encourage arts education
  • Bring peace to the Middle East
  • Provide every opportunity for my family

Long-term goals vs. short-term goals

Look at the big picture. Decide what your place in the world might be. Once you set a major life goal, you have a direction for your first few steps. Your goal might change, so be flexible. But until then, make every decision with this long-term goal in mind. Your life goal may manifest itself in different ways. For example, if your goal is to encourage arts education, there are many paths you can take. You could earn a degree in education and become a teacher. You could start a foundation that offers grants to programs that promote arts education. You could be a financial planner who donates some amount of money to an arts organization every year.

Any two people could choose drastically different paths with the same goal in mind, and the path will have more of a bearing on your short-term financial goals than the destination. The teacher will need to find the money to enroll in a college to earn a teaching degree. The person who wants to start a foundation might have to start with $1 million or more.

If visualization is motivational, consider writing goals down. To follow a standard form, write your long-term life goal at the top of a piece of paper. In order to achieve that goal, understanding that you might never fully achieve it, what are some of the smaller milestones you must achieve? For example, the teacher must earn a qualifying degree. He must also earn a teaching certificate. The individual who wants to help bring peace to the Middle East may want to earn a degree in international relations and be elected or appointed to a political position. Each of these accomplishments consist of another level of goals.

If this structure is beginning to sound like an outline, that may be the form your goals should take on paper. Each larger goal requires a number of smaller goals.

We don’t need to think about finances until we get to the lowest level. I’ve heard people say, “My goal is to earn $1 million by the time I’m 30 years old,” and I want to get away from that type of thinking as much as possible. Money is not the goal; money is only a tool that can be used to help you reach real goals. For example, one of the sub-goals involved in becoming a teacher is partaking in an accredited college program that offers an education degree, either a bachelor’s degree or master’s degree depending on your needs, at completion. In order to receive this education, there are additional sub-goals, including the ability to afford the education. The money might come from loans, scholarships, fellowships, grants, or your own income, but this is where finances finally come to play in process of setting goals.

Everyone has a life goal. It may be a calling, like helping to cure AIDS in Africa, or it may be a personal goal to be the best mother you can be. You can consider this your mission. Without defining one (or more), financial goals have no context. Money is nothing by itself. Getting out of debt is a goal, but only so far as it gives you the flexibility to use your money for a better purpose. What’s yours?

Updated September 16, 2011 and originally published December 8, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
avatar
Points: ♦127,372
Rank: Platinum
About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 9 comments… read them below or add one }

avatar Goalhunter

I like your “alternative” take on goals. Goals are important to reach an endpoint, but are endpoints really that important? I think getting to the goal should be fun too especially if it’s something long-term like a retirement goal. Involving people and generating a spirit helps a lot too. Makes us realize that life is not just about getting to where you want, but there are plenty of other people who can be swept up in your spirit. That’s why I like some of the bloggers like you who generate lots of positive vibes.

Reply to this comment

avatar Craig

I like how you take the SMART goal concept and twist it into more of a life coaching aspect. I agree, yes everyone has goals, whether financial or not. But the goal shouldn’t just end there. You should work towards the goal, and then some. Get your cherry on top you can say. For example with me, I am trying to set aside a small account to slowly build up. I would like to then go on a vacation and see a bit of the world, experience a new culture and try new foods.

Reply to this comment

avatar Andrew Chilton

I have done two of your suggestions, I have a long term goal and one which isn’t ‘SMART’ (though I do kinda like SMART goals). It all comes down to this:

Retire at 40 :-)

That’s it, no more, no less. Not even any kind of rule about how much money I’d need. Of course, along with that, I’d need to pay off the mortgage by then so that determines a particular monetary factor but it’d have to be something above that. Anyway, it’s going to be interesting but I’m sure I’ll make it.

Reply to this comment

avatar Luke Landes ♦127,372 (Platinum)

Andrew: What will retiring at 40 help you accomplish? Is your ultimate goal just not to work or is there something you want to do once you leave the corporate world? I think retiring at 40 is a great time-based goal, but what happens next?

Reply to this comment

avatar Goalhunter

Even Flexo’s question is almost looking for another goal. A different question might be what happens during the first 40 years? You might get caught into “wasting” 40 years to achieve something. That is, always looking forward, then you get there, then you just pick something else to look forward to.

An endless series of goals makes it tough to reap the rewards because you just reinvest everything good towards the next goal.

Example: You want to go to a concert but it costs $100. So you don’t go, investing the $100 into your monthly “save 10%” surplus goal. You take those surpluses and invest them into your “index fund strategy to grow at 8% per year”. After awhile your money grows and you take it to buy some bigger investment and achieve a bigger goal. At the age of 40 the sum of all the denials and strategies will cover your salary so you quit your job. Now you have a huge surplus of time so you have to make yourself some other goals that will “effectively” use the time.

Reply to this comment

avatar Andrew Chilton

There are lots of things I want to do, to accomplish. Certainly one of my main goals is so that I don’t have to do the daily grind and that I can enjoy my short stint on this lovely planet of ours a little more. But it’s not just about that. I also know that at 40, I am still in my prime and that I’m still going to be too useful not to work at all. That would be a waste.

I’ll definitely end up working part time but hopefully for something I find more fulfilling. There are various organisations I have my eye on that would probably be happy to use some of my skills so I’m sure I’d end up giving a fair bit of my time away.

Plus there are a few hobbies I enjoy too! Biking, photography and woodwork spring to mind.

Reply to this comment

avatar Dawn

Wow, great post.

“Money is not the goal; money is only a tool that can be used to help you reach real goals.”

I never really thought of it this way, all my goals were cash bases. “I want to have that salary, that much in an E-fund, afford that car and payoff that” etc.

This is very good point; I need to sit down and write what exactly my life goals are. Where I want to be before I can make those financial goals.

Reply to this comment

avatar David

I agree that SMART goals are too short-sighted, but I feel like it’s just has bad to have the long term goal (of whatever it is that brings fulfillment to your life) without a road map to get there.

I feel like you need to balance the long and short term if you want to achieve your goals.

As an example, if my long term goal/purpose is to start and run a charity, my shorter term goals might be to retire from the workforce early by saving and investing so much money every month. If you don’t have both parts – the what and the how – it’s likely to fail.

You may want to check out “The Number”, by Lee Eisenberg. It’s a book devoted to a lot of the questions you ask above. It tackles how to decide what it is you really want out of life, and being realistic about what you need to retire and live a life of fulfillment.. Its focus is really on how to figure out what you want to do when you get there.

It’s arguably aimed at an older audience (those preparing to retire), but I think it’s good for younger readers too because it gives them a sense of the long term purpose that you mentioned. It helped me realize that even with my “long term” outlook on personal finance, I hadn’t even thought about what I was going to do when I retired.

Reply to this comment

avatar Luke Landes ♦127,372 (Platinum)

The Number is one of my favorite financial books. I’m not denying the importance of shorter term goals, but long-term goals and missions should be set first to give those short-term goals direction and context. Part 8 addresses aspects of short-term savings goals and these tips for choosing and achieving a purpose contains some suggestions for relating short-term goals to a broader view.

Reply to this comment

Leave a Comment

Connect with Facebook

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: