Setting SMART Financial Goals

Setting financial goals may mean the difference between financial freedom and struggling to do the things that you want to do. It may mean the difference between financial success and stress and worry about your next pay check. This makes financial goal setting important for you and your you need to get it right.

In my years of advising clients about goal setting I have found that having a blueprint greatly increases your chances of goal setting success.

This goal blueprint can be distilled into 6 steps:

  1. Develop a personal vision of your financial success
  2. Write down your goals: Set long-term goals on paper or use goal setting software
  3. Identify a set of actions to achieve each goal
  4. Break long-term goals into short-term finance or money goals
  5. Develop a goal setting strategy for each short-term finance goal
  6. Review, protect, and enjoy

1. Develop a financial vision

Whatever your goal is, setting and achieving goals should be based on values that are important to you. What does financial success look like to you?

Do you want to:

  • save for your children's education?
  • get a deposit on a house?
  • have enough money for a comfortable retirement?
  • develop a hobby into a successful business?
  • pass your wealth to your children?
  • protect your current and future lifestyle?

If you couldn't fail what would your vision of financial success look like? How do you want to be remembered in this area of your life?

These are important questions that you must ask in brainstorming your ideas for finance or money goals. These goal setting activities could help you in this brainstorming.

financial goal setting

2. Write down your long-term financial goals

You have practiced 'no limit' thinking which means that you have dreamed big and not placed any limits on your goals. You have laid the foundation for your goal setting success.

Now it is important to build on that vision and use goal setting. Without writing your goals down, they remain a wish list. Writing your goals on paper makes them concrete - it brings your wish list from the abstract into the real world.

Download this financial goal setting worksheet (PDF file).

Step 1: Identify one value/intention and write a long-term finance goal that reflects this value/intention.

Step 2: Try to make these SMART goals. Setting specific goals with a deadline focuses the mind as well as your savings strategy. 

For example, say you have the goal

  • "I want to retire by the age of 55." This is a general goal and could be better phrased as "I want to retire at 55 with an after tax-income of $40,000 per year that will last at least 20 years."

3. Ask the HOW? question

Robert Kiyosaki, author of Rich Dad Poor Dad, described three types of income.

These are:

  • earned income through wages for your labor
  • portfolio income through your interest and dividends
  • passive income

On your financial template you downloaded earlier identify possible actions that you can take to support your long-term finance goals.

To increase your earned income, ask yourself:

  • What skills are being sought after by employers?
  • How can I develop these skills?

The problem with earned income is that it often depends on the number of hours you work - when you stop work then your income dries up.

When you stop work, are you planning to have enough portfolio and passive income to keep you in comfortable retirement?

One way to develop your passive income is to think of ways that you can make your hobby or skills into an online business.

financial goals

A tried and tested way of creating wealth is through investing a regular sum of money over a long period of time. By investing an amount each month into well-chosen assets allows you to be well on the way to developing substantial savings.

Developing your portfolio income in this way makes use of compound interest and minimizes the risk of market movements affecting your investment.

Your finance goals drive the strategy that then drives the returns and risks you need to take.

Your answers to these questions form the basis for setting your short-term financial goals - the building blocks to long-term success.

4. Develop short-term financial goals

You know what you want to achieve and have written your goals in clear, measurable terms. Before setting short-term goals, try to get a realistic view of your current wealth.

Knowing where you are at helps you to identify strategies to put in place a budget but also identifies ways that you can attain your goals.

Budgeting will determine:

  • how much money you have left over to invest
  • ways that you can reduce your expenditure
  • your plan plan to achieve your financial goals

To achieve financial success it is important to break your long-term goals into more manageable short-term goals. Your long-term goals are your final destination but between now and then there are many actions that are needed to support your long-term financial goals.

Each step towards your long-term goals is an action completed. These goal setting templates may be beneficial to brainstorm your short-term financial goals.

5. Develop a goal setting plan for your short-term goals

A financial plan to achieve your goals is actually a goal setting plan. A goal setting plan is a set of steps that you need to take to achieve your goals.

By writing down your action plan you often highlight extra knowledge you may need in the area or of the obstacles that get in the way of achieving your goals.

Download this goal setting template setting and achieving goals (PDF file).

6. Review, protect, and enjoy

Reviewing your financial progress is achieved when you write down your goal setting plan and have clear goal setting strategies to achieve goal setting success

Protecting your wealth and your family, now and in the future, is normally done through various life insurance and income protection products. How much protection is required should always be talked over with your qualified financial planner

Enjoy it. There is not much point in creating wealth if you can’t enjoy it. Reward yourself for achieving goals. As the proverb goes “All work and no play makes Jack a dull boy.”

If you liked setting financial goals then you may also like career goal setting.

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