How to Set Better Financial Goals

The second Friday in January is “Quitter’s Day”—the day you’re most likely to give up on your New Year's resolutions. Part of the reason that people give up on their goals and resolutions is that they don’t set good ones. They are too vague, poorly thought out, or influenced by others. Here are the steps to set good financial goals that are more likely to stick and set yourself up to follow through:

Start with your intention

Before setting financial goals, explore and define your intentions. An intention should answer the question “How do you want to feel?” or “Who do you want to be?” It’s your “why” and your reason for taking action or making a change. Your intentions define the purpose of your goals and help ensure that they are truly yours and not overly influenced by family, friends, and social media. Here are some examples of financial intentions:

• I want the freedom to leave my job and find something better suited to me.

• I want to feel confident about my financial decisions.

• I want to feel comfortable in my home and make it exactly as I want.

Set SMART goals

Once you have defined your intention, you can start setting goals. A goal is a desired outcome or result based on action that directly supports your intentions. For financial goals, it’s also helpful to distinguish between foundational goals and life money goals.

• Foundational Goals: Improve your overall financial wellness and resilience (i.e. building an emergency fund, paying off debt, saving for retirement). Foundational goals give you the freedom and security to pursue your life goals.

• Life Money Goals: Support your values, enjoyment, and the life you want to live (i.e. traveling, buying a house, updating your wardrobe, moving to a new city, supporting your parents).

To set effective goals, follow the SMART goal framework. Create each goal to be specific, measurable, achievable, realistic, and time-bound. For example, to support the intention, “I want the freedom to leave my job and find something better suited to me,” you might set the following SMART goals:

• Save $1,000 per month for 12 months to build a six-month emergency fund by the end of the year

• Pause my gym membership for three months to hire a career coach

Identify action items & habits

For a higher chance of achieving your goals, identify what action items and habits will support them. Action items are one-off “to-dos” while habits are ongoing or regular actions that require little to no thought. Both action items and habits help you break your goals down into smaller steps. Continuing with our example, to support a goal of saving $1,000 per month to build a six-month emergency fund, you could set the following action items:

• Research high yield savings accounts and choose one

• Set up a new high yield savings account as an emergency fund

• Set a recurring transfer of $500 for the 15th and the 30th

You might also work on cultivating habits like these:

• Track your expenses daily

• Make lunch at home daily to save $75 per week

Final Thoughts

Setting financial goals is great, but it’s not enough on its own. Your goals have more power when they are connected to what you want and how to want to feel. Identifying the specific action items and habits that support your goals make them more digestible and easier to work on.  

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