Setting financial goals is a core tenant of good family financial management. But how? And why? Smart financial goals should more than just “S.M.A.R.T.” (specific, measurable, attainable, realistic/relevant, and time-bound…). “I will save $200 per month by stopping eating out and will do this for 24 months to use towards a down payment on house in 2023” seems like a solid plan at first glance.
But what do you do when your friend’s wedding comes up and you also need to buy an outfit, a gift, and plane tickets? And what when you have a car repair? And how does buying a house in 2023 fit into your bigger life plan that makes it more or less important than these other things that come up? In short, what makes you stick with it, both structurally in how you manage your money and emotionally?
Truly smart financial goals go deeper. They must be embedded within our larger money plan, tap into the ‘why’ of our money decisions to align with our core values, and adapt to changes.
1. Smart financial goals… are one piece of a comprehensive money plan
Setting a plan is great, but if it’s not protected from the unforeseen stuff of life that affects your money, it may be doomed from the start! A strong foundation of money management is needed to support the success of any financial goal. Your money management foundation must ensure bills are paid on time and in full, debt payments are in place, and include a savings rate that supports the three types of money you keep in savings.
You don’t have to be aggressively saving or paying off debt as part of that foundation- you just need to know what is going where and be in a place that is stable. You need to be in control of every dollar. Only then do financial goals have the support system they need to succeed. So, get organized first by following my advice on knowing your numbers, and then start setting and prioritizing your smart financial goals within that money system.
Only then do financial goals have the support system they need to succeed.
2. Smart financial goals… support your vision for your life & core values
Goals aligned with your truest priorities will succeed because they are deeply important to you. If there’s no ‘why’ to your goal, it’s unlikely to happen. It’s easy to come up with goals of perhaps what you should do but you need to go a bit deeper and identify how that supports your bigger picture values… or else rethink a goal that is better aligned.
In short, make sure your goals are your own. Some families want to live debt free. Some families dream of owning a house in a particular neighborhood. Some want to retire early or live on the road traveling. Each of these is a nice goal, but which goal aligns and supports your larger vision for your life? Which one are you motivated to support and protect with every daily choice you make with your money?
You will work hard to achieve your financial goals, learning new strategies for how you spend and live, perhaps correcting tough habits, and working hard to earn money. Be sure your financial goals respect this reality and are worth the effort. If they aren’t worth the effort, they will surely fail.
I would rather you make a goal that feels completely unattainable but that you are on fire to make happen, because no matter what you will make progress towards something that you are truly meant to be or do. And even if the original goal you had in mind is never realized exactly, I promise you it will be because your progress led you down a path to something better you couldn’t have even seen before. Always stay true to your vision and mission.
3. Smart financial goals… are adaptable
Financial goals are critical to set your sites up and ahead towards something you want to accomplish. But there is a lot of space between now and checking that goal of the list. Income could change, expenses could change, a mistake or unexpected set-back could occur. In fact, any or all of things most likely will occur, especially for long-term financial goals.
Stuff happens and that’s ok. It’s how you respond that really counts. Having goals nested within a broader financial plan (as noted in #1 above) will help protect your goals from too much of this unexpected push and pull. But creating and viewing them as adaptable and flexible over time is key as well.
Working towards something in and of itself is very important and will move you forward financially and personally. But plan to revisit your goals often and adapt them as necessary.
When an unexpected windfall comes along, perhaps you can incorporate that into a faster timeline to your goal. Or when things get tough, make a conscious choice to adjust your goal transactions accordingly, making up for it another way in the future. For example, it may be most realistic to cancel your plan for extra debt payments in November and December because you have a furnace failure, followed by hosting Christmas for the family (post-pandemic scenario!).
Adapting your plan is the realistic choice and is far superior to abandoning the plan. You can even build in extra payments towards your goal in future months if you want to make up for those you nixed during less workable times. Ultimately, failure is in the eye of the beholder. You must always “fail” forward. Adapting is key.