5 steps to better financial goals
Everyone has financial goals. Maybe you want to pay off your mortgage early, stop relying on your credit cards, or go on an amazing overseas holiday (once we’re allowed to travel again). Or you might want to set up good money habits, like investing regularly or look at ways to grow your super. Whatever you want to achieve, it’s possible – as long as you approach your goals with the right mindset.
There’s a lot of science behind what happens to your brain when you set goals. It can trigger new behaviours, increase your motivation and attention, and improve your self-confidence. What’s more, when you set goals that are ambitious, challenging and highly important to you, you’re much more likely to perform in a way that helps you achieve them.
So, in other words, the best way to set yourself up for success is to make sure you choose the right financial goals and support them with a solid plan. Here are five steps that will help you get started.
Step 1: Identify and write down your goals
Goals are meaningless if they’re just vague ideas in your mind. That’s why new year resolutions always fail. Writing them down will help you focus on what you want. To make you even more accountable, share your goals with someone and update them on your progress.
A 2015 study by psychologist Dr Gail Matthews showed that 76% of people who wrote down their goals and shared their progress were able to successfully achieve them, compared to a 42% success rate for people who didn’t write down or involve other people in their goals.
Make a list of all the things you want to achieve financially and then prioritise them in order of their importance to you and your loved ones. You’ll find that two or three goals will stand out – they’re the ones to focus on.
Step 2: Make them specific, measurable and realistic
Now that you’ve decided on your goals, you need to expand on them so you know what you’re working towards. The best goals are specific, measurable and realistic. Set yourself a challenge, but don’t make your goals impossible to achieve.
For example, consider this common financial goal:
I want to pay off my mortgage earlier.
That’s a great goal. But it doesn’t mean much if you don’t put parameters around it. Here’s a better example:
I’m going to pay off my mortgage by December 2028. I will do this by paying an extra $500 each month on top of my minimum payment.
This goal is much more specific, with a set deadline and regular actions you need to perform.
Step 3: Have a plan
Work out the actions you need to take to achieve your goals. Do you need to earn more? Spend less? Refinance your loan so you’re paying lower interest? Cut back on some non-essentials?
Let’s revisit our earlier goal. We know we can achieve it by paying an extra $500 each month. But where is that money coming from, and what will you do with those extra payments? This needs to be part of your plan. For example:
I’m going to pay off my mortgage by December 2028. I will do this by paying an extra $500 each month on top of my minimum payment and keeping that money in a mortgage offset account to reduce the amount of interest I pay. To ensure I have this money available each month, I will work to a monthly budget that minimises any unnecessary spending and I will increase my income by working two hours of overtime each week.
Everyone’s plan will be unique. The key is to make it relevant to your lifestyle to give yourself every chance of success. It’s also a good idea to allow for the occasional slip up in your plan. No-one is perfect.
Step 4: Track your progress
Big, long-term financial goals are great, but it’s easy to become overwhelmed by them. Breaking down bigger goals into smaller steps can help you track your progress and celebrate your success along the way.
If you have a goal with a five-year deadline, break it down into five one-year goals. Or even monthly goals. That way you’ll know how you’re going and whether you need to make any adjustments to your behaviour. Reward yourself when you reach certain milestones – this can help keep you motivated and avoid splurging.
Step 5: Revisit and refine your goals regularly
No matter how determined you are to reach your financial goals, things may get in the way. You may have unexpected major expenses, or your priorities may change. That’s okay. Once you have the right behaviours and mindset of working towards a financial goal, you can adjust the goalposts whenever you need to. The process is far more important than the outcome.
Along with tracking your progress and celebrating your small wins, revisit your larger financial goals regularly, Are they still your top priorities, and does your plan need to be updated? If you have a financial adviser, they can help you with this and let you know if you’re overreaching or if you could be striving for more.
What financial goals do you want to work towards?
Source: Colonial First State