The most successful, wealthy people in the world set financial goals.
Have you ever set a financial goal? Retire someday… Buy a new house in a few years… Pay off your student loan debt…
In the past, we set financial goals that were very vague. One goal that I distinctly remember was the desire to be a power couple.
What is that you may ask? I think it was making enough money to afford anything we wanted and buying the status symbols of wealth.
If you asked Mrs. Frugal Financier, she may have said something completely different.
The point is that we had a financial goal but it was far too vague for us to accomplish.
We wised up and are here to tell you why you should set financial goals.
Get Specific|SetFinancialGoals
In other aspects of life people typically have very specific goals. Like, I want to lose 20 pounds by the summer or I want to fit into a size 4 by the time of my high school reunion.
But when it comes to financial goals people tend to be more vague, either because we do not know the “bar” (i.e. the amount needed to retire) we need to jump over or we have not really thought about our financial goals enough.
Looking at our power couple goal, we did not specify the exact amount of money or income or wealth required to be a “power couple”.
The problem is that we were not specific about our actual financial goal.
You can’t just say that your goal is to be rich because it isn’t specific enough to accomplish.
You need to set the goal post because being too vague may cause the post to move or disappear completely.
When we set financial goals, we now use specific amounts and specific time periods.
Like I want to pay off $XX dollars of student debt in two years.
Looking at our “power couple” goal, we could have restated it like this:
We want to earn a combined salary double the cost of living in our area within the next five years.
Being specific is also good for tracking your goal.
How do you know when you’ve become a “power couple”? Is it when you bought the Mercedes on a 5-year loan or you’re able to refresh your wardrobe every season?
Better to put your goal in monetary terms so that you can track when you’ve reached the goal such as comparing your salary to your cost of living annually or bi-annually.
Do Your Research|SetFinancialGoals
But how do you come up with these exact amounts?
Part of the difficulty with financial goals is that you may not know how to get to the finish line or how long to accomplish the goal in a reasonable amount of time.
When you are trying to lose weight you usually know the exact number of pounds you want to lose for our goal. But, what is the exact amount of money that is enough to retire?
Prior to coming up with a financial goal, do your research (maybe even reach out to professionals if needed) to determine the specifics of your financial goal.
If needed, start broad and then research to nail down the specifics.
Just like if you have the broad goal of losing weight, you might research the proper work-outs or dietary changes to accomplish the goal.
Do your research, folks.
Set Your Financial Goal
We also didn’t think about why we wanted to be a “power couple”, the underlying motivations behind our financial goal.
Typically, even though financial goals involve money and finances in some regard, there is an underlying life goal, like the ability to quit a job or have certain experiences.
We want you to figure out that underlying goal. Find something that resonates with you – your whyfor setting the goal.
Looking back at some of our reasons for wanting to become a “power couple” (cringe) we ended up with whys that didn’t represent us.
Find something that you feel motivated to achieve, not just something you think would be cool in the moment.
Top-Down Goal Setting Approach|SetFinancialGoals
Here is a top-down approach, start with a financial goal:
Maybe you have the goal of being “rich”?
First, return back to the “being specific” section. Okay, how about earning twice the income as my cost of living in three years.
Now that we have that down, why? Why do we want to make that much money?
Maybe its so that we feel comfortable and enjoy the ability to afford anything (within reason) we want to buy or partake in.
But thats something we have to figure out. If we don’t, we risk the chance of pursuing a financial goal that doesn’t match our life goal.
Bottom-Up Approach|SetFinancialGoals
The bottom-up approach, start with a life goal:
Maybe you want to quityou job and raise children in five years.
There are many different financial ways to accomplish this goal.
Maybe it’s starting a business that allows you to work from home. Maybe you want no work at all and you want to own enough investments to generate income to cover the cost of living adjusted for inflation in ten years.
By working from the life goal to the financial goal, you have a firm grasp of why you are trying accomplish the financial goal.
It also helps when you have a particularly difficult financial goal, such as reducing your expenses, to have the life-goal keeping you disciplined.
Final Thoughts
- Get specific. Narrow down what your interests are in life
- Research: research these interests to see what you need financially in order to achieve them
- Set a Goal: use the top-down approach by starting with a financial goal or use the bottom-up approach by starting with a life goal. Either way, you’ll be successful!
