Most of us have an idea of the life we would like to live. Maybe we want to open a business, to pay off a home in our favorite town or to retire with a legacy to leave future generations.
But without a goal and a strategy for reaching it, these ideas may never become a reality.
The beginning of a new year is a great time to consider your existing financial goals and decide if they still align with your priorities. It may also be a good time to check if you have the right systems and support needed to achieve these goals when you want to.
Whether you have a long list of ambitions for your money, or you’re just getting started, we’ll look at the four steps needed for effective goal-setting and—more importantly—goal-achieving:
The aim of this step is to recognize your personal values (family, charity, independence, etc.) and decide which financial goals may support your “why.”
You may end up with multiple goals, which is totally fine! With complexities such as compound interest and debt interest rates, it is rarely beneficial to put off funding retirement or paying off student loans until you’ve entirely completed a different goal, even if this is a higher priority.
List out everything you want to accomplish financially, and you can work out the details later.
When it comes to financial goals, you need to juggle many priorities, and you may need some help to do this. Working with a financial professional can help you manage your goals while keeping your personal values and the most tax- and time-efficient strategies in mind.
First, categorize your goals by when they can be achieved:
Knowing the timeframe for your goal will help you strategize saving for it.
“The biggest mistake we see in financial goal-setting is people not knowing which strategies to use for each goal,” says James Jaderborg, a financial advisor from Baltimore. “Having dollars for short-term goals and priorities in long-term vehicles and keeping long-term dollars in short-term strategies and vehicles can significantly lower your ability to accomplish your financial goals.”
Once you know when you want to complete the goal, you need to figure out the actual dollar amount you will need to save or pay down and what you will need to contribute each week or month to reach that milestone.
To do this, write down the goal (i.e. save for a down payment on a house) and then how much money is needed to reach that goal (i.e. $58,000). Pick a date when you want or need to achieve this, and then divide the amount by the number of months or weeks you have left.
Depending on the goal, it may be helpful to use an online calculator, which will help you account for inflation and compound interest, when figuring out final totals and monthly payments:
Many financial professionals are equipped with these types of tools and more to help you figure out the amount of money you need for each goal and a manageable way to get there based on your current income and expenses.
Don’t be discouraged if your monthly payment seems too high to manage. The sooner you identify that your goals may be loftier than your current financial state can accommodate, the sooner you can adjust.
Garret Colao, a financial planner specializing in helping young professionals develop and maintain a sound financial strategy, says the biggest mistake people make with financial goal-setting is having unrealistic expectations.
“People sometimes aren’t realistic regarding their finances,” says Colao. “However, most of the time this is a direct result of not having the clarity that a financial strategy creates. Once people get this clarity, they are able to recognize what is realistic and what is not and to start on the path to achieving some big long-term goals.”
Once you’ve specified your goals, it’s time to start creating the habits that will help you achieve them.
First, you will need to make a budget that accounts for monthly payments toward your goal. Everyone has a different strategy for budgeting, but the fundamental idea is making sure you have more money coming in than you have going out.
To make your budget, calculate how much you have in income each month, and then determine how much you’re spending on bills, reoccurring expenses, personal spending and savings. Don’t forget to include how much you’ve decided to contribute to each of your goals!
You can use budgeting apps or a receipt tracking system to make sure you’re sticking to your budget each month and not falling behind.
Jaderborg says the best way to stick to your financial goals is to keep them top of mind, “If you’re making a big purchase, take 30-60 seconds to cautiously work through if that item is in alignment with your long-term goals and priorities or if it’s just a short-term want.”
Next, create a strategy for how you will complete the steps toward your goal. You may set up automatic transfers to your savings account, put your loan payment on autopay or set a reminder in your calendar to contribute to your goal each month—just as long as you have a strategy that makes it easy to stick to your commitment.
You should also create a system for tracking your progress with a manual or digital chart that will keep you motivated.
The last and most important step is to monitor your success. A great way to do this is to establish time to meet with a financial professional or accountability partner to help you realign with your goals or change them if necessary.
“Having something or someone holding you accountable always seems to be something that helps people achieve goals,” says Colao. “A financial professional can help by providing that accountability through the process. It is my job to ensure we are staying on track to achieve your goals.”
Finally, don’t be alarmed if your goals do change over time. Starting with a strategy will make these shifts in priorities more manageable when they come.
The goals you set and how you achieve them is individual to you. A good financial professional understands this and will help you customize a strategy that works for you now and will help you create the future you desire for yourself tomorrow.
James Jaderborg works with physicians and professionals to help them overcome financial challenges unique to their careers. James helps his clients and their families identify and prioritize their financial goals, while strategizing with them on how best to actively pursue these goals.
When he’s not working, James serves as a Board Director for the nonprofit organization Stop Alzheimer’s Now, spends time with family and friends or stays active outdoors.
As a financial advisor based in North Star’s Minneapolis office, Garret Colao helps his clients develop and maintain a sound financial strategy, while also integrating the appropriate risk management and investing strategies. Working primarily with individuals in Minnesota and Florida, Garret works with young professionals across a variety of industries, including physicians, veterinarians and lawyers.
Outside of work, Garret is involved with local sports leagues (flag football, softball and kickball), the Board of Directors for The Phoenix Residence and the University of St. Thomas Young Alumni Board.
1CollegeBoard. (2018, October). Trends in College Pricing 2018. Retrieved from https://research.collegeboard.org/pdf/trends-college-pricing-2018-full-report.pdf.
2The Federal Reserve System. (2017, May). Report on the Economic Well-Being of U.S. Households in 2016. Retrieved from https://www.federalreserve.gov/publications/files/2016-report-economic-well-being-us-households-201705.pdf.