Many of us look to the New Year for a fresh start. If New Years Resolutions are on your mind, one of them might be to get yourself back on track financially. If so, good for you!
But how exactly can a person “get back on track”?
It starts with effective goal setting.
Get SMART
If you’ve been to business school or listened to enough TED Talks, you’ve heard of the SMART goal framework. The reason it’s so popular is because it works (really well). To be a SMART goal, a goal must be:
Specific
Measurable
Achievable
Relevant
Time-Bound
To demonstrate, I’ll take a non-SMART goal and drop it into the SMART goal framework.
Non-SMART goal: “This year I’m going to start saving for retirement.”
Well, it is technically Measurable, it might be Achievable, we can assume it’s Relevant, and it is somewhat Time-Bound. We’re about halfway there. But it needs to be Specific, and we don’t really know if it’s Achievable.
SMART Goal: “Starting in January of 2025, I will save $500 a month in my employer-sponsored retirement plan. I will increase my contribution monthly contribution by $200 each year until I’m saving $1,000 a month in my employer-sponsored retirement plan.”
See the difference? This goal has a specific action at a specific time, and it will be easy to tell if it’s achievable because we have real numbers to work with. We can’t stop there, though — goal setting is only the first step.
Make a Plan
Once you’ve decided what you want to achieve, you will need to draw a roadmap to get there. Let’s take our example SMART goal from above. There are several steps between where you are now and where you want to be. To meet this goal, you would need to:
- Check to see if saving $500 a month fits into your budget (is it Achievable?).
- Contact your employer-sponsored retirement plan to ask how you can set up automatic savings from your paycheck.
- Set up the automatic savings.
- Choose how you’ll invest your savings.
- Confirm on your next paycheck that your automatic savings have taken effect.
- Arrange for increased savings each year, either automatically or by setting a reminder for yourself.
Simply setting the goal but not figuring out how you’ll get there is almost a guarantee that your goal will go unmet.
Check Your Progress
Having goals that unfold over many years, or goals that may shift over time, means checking your progress and correcting your course as needed.
Let’s look again at our example above.
Assuming that you set the goal and took all the steps to meet your goal, now you need to check back to make sure the goal remains Relevant and Achievable.
For example, what if you get a pay raise during the year? Will you increase your contribution amount before year-end?
What if you decide that you are happy to retire later and feel you don’t need to save as much? Maybe that means socking $400 instead of $500?
What if you had some unexpected life changes that made cash flow tighter? Maybe you need to suspend or reduce your savings for a time.
Make sure that you’re checking in periodically. Life changes, and your goals and plan need to flex in response.
Consider Getting Help
For some investors, setting goals is easy and comes naturally. They don’t need help and should not seek it.
But others may find the process intimidating.
Personally, I find annual goal setting is one of my least favorite activities — but I do it anyway because I know it’s important and I’ve built the habit.
If goal setting and plan making isn’t your thing, or maybe you need a nudge in the right direction, working with a Financial Advisor who focuses on Financial Planning could be the best thing you do for yourself.
My practice is planning-centric, and I’ve helped dozens of individuals and couples set goals, make plans, and follow through on specific actions.
Even if you don’t hire me (I’m not everyone’s cup of tea), hire someone who can help you get there. Few of us can do this alone.
Ready to get started?
Book your free one-hour consultation now
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