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How to set financial goals starting with six simple steps

We look at the simple things that work best when setting financial goals that you need to stick to.

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Setting financial goals can often seem like a headache, especially if you’ve struggled to meet them in the past.

However, making changes to your system and processes may be the inspiration you need to kick start your financial to-do list.

Whether you’re looking to save for a gift for yourself or a big financial milestone like paying off your mortgage, goal setting is an essential part of becoming financially fit.

If you’re not sure how or where to start, here is my six-step process for setting financial goals.

1: Reflect on what went wrong the previous year

First, start by reflecting what you could’ve done better last year and ask yourself why you didn’t achieve what you set out to complete.

Perhaps your goals were unrealistic and you applied too much pressure on yourself, or maybe you got distracted by the hurdles that life threw at you. 2020 in particular took many by a not-so-pleasant financial surprise.

List out your key learnings and keep them handy for when you start collating your 2021 financial goals.

But remember: don’t feel ashamed or guilty for not achieving something you set out to do. Life happens, so it’s best to learn from your mistakes and start fresh with an open mind.

2: Work out what matters to you

Your financial goals should essentially mirror your financial priorities.

Take a moment to assess what’s important to you financially, both in the long and short terms.

This could be anything from saving for a home loan deposit, paying off a mortgage or debts, or simply saving for a trip or even a new winter coat.

You should also consider categorising your goals as either a ‘need’ or a ‘want’.

‘Needs’ are goods or services that are required for survival and to function in society.

Whilst, ‘wants” are the nice-to-have goods or services you desire to have and are non-essential.

By identifying your ‘needs’ and ‘wants’, you’ll be able to recognise areas where you can reduce or limit your spending. If finances are tight, you may want to reduce your ‘wants’ where necessary.

However, in times of greater financial stability or during special times of the year such as a birthday or celebration, you may choose to be more lenient.

3: Ensure your goals are SMART

Once you decide on the goals you wish to achieve, it’s important to compare it to a SMART goal strategy. A SMART goal strategy helps improve your chances of your goals being successful by ensuring they are:

Specific: Be specific by asking yourself the popular ‘W’ questions (in some cases not all will be applicable).

  • WHO needs to be involved to achieve your goal?
  • WHAT are you trying to accomplish with your goal?
  • WHEN are you going to achieve your goal?
  • WHERE are you going to achieve your goal?
  • WHICH requirements do you need to achieve your goal?
  • WHY do you want to achieve your goal? Measurable: What metrics or criteria are you going to use to determine if you have attained the goal? If you have no metrics or criteria for a goal, it will be difficult to determine your progress and check whether you’re in the right direction.

To make a goal measurable ask yourself:

  1. How many/much?

  2. How do I know if I have reached my goal?

  3. What is my indicator of progress?

Achievable: In order for a goal to be achievable it must be realistic with the resources and time you have available at hand.Relevant: Nobody sets financial goals for the fun of it. There should be a real benefit attached for reaching your chosen goal.

Timely: Anyone can set goals, but if it lacks realistic timing, chances are you’ll be unlikely to succeed. Setting a target date for achieving a goal is imperative.

4: Establish a budget

In order to be able to fund your various financial goals, it’s paramount to establish a spending budget.

Not only will it provide you a clear picture of where your cash flow is going, but it gives you an indication of how much money you need to put aside each paycheck after your monthly obligations (such as rent and bills) in order to fund your goals.

5: Monitor your progress

Are you on track to meet your goals?

If the answer is yes – great! However, if the answer is no; it may be time to reflect on any obstacles you are facing and work out what’s holding you back.

6: Adjust where needed

Goals can be established with the best intentions, but sometimes other priorities can get in the way.

If you aren’t making any progress to meet your goals, don’t stress. This might just mean that you need to adjust your goals or your current spending habits to get back on course.

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