Creating and Customizing Your 2021 Financial Goals: How To
Many people look at the turning of the calendar year as an opportunity for a fresh start. It’s an opportunity to close the door on a year that perhaps didn’t go as we wanted (and for most of us, 2020 certainly fits the bill), but it’s also a chance to have a fresh blank year ahead of us.
That sense of opportunity is often expressed in the form of a yearly goal or a New Year’s resolution. They’re often personal improvement goals, done with the best of intention, but then the wheels fall off them in a month or two.
Why does that happen? Often, it’s because the goal wasn’t chosen well, or because it wasn’t really optimized for your life situation.
Most times, your goals sound great, but how do you make sure that they don’t fall apart by February? The key is to devise a personalized goal that’s actually designed for success from the start and make sure that your goal is optimized for the long term and that your financial goal is practical. Devise a SMART personal finance goal — specific, measurable, actionable, realistic, and time-limited. Here’s how to make a vague personal finance goal SMART.
Consider what’s realistic in your current situation
Is your goal something you can realistically pull off in your current situation? Many people devise a goal that’s completely unrealistic and far outside the bounds of what they can actually achieve, setting themselves up for failure. Devise an achievable goal if you take small, positive, consistent steps throughout the year. Avoid goals that require you to make radical life changes, especially ones that require continuous effort or willpower, or thought to maintain.
Give the goal a specific time frame and outcome
Specify what exactly it is that you want to achieve and when you want to achieve it. Give yourself an end date, as well as very specifically identify what you will have done by that date. For example, “building an emergency fund” is a noble goal, but it doesn’t specify exactly what that means or when you want to achieve it. Instead, you should say “I will have an emergency fund started by the end of the week and a healthy emergency fund built by the end of the year.”
Make the outcome based on your actions as much as possible
It is a good idea to have the goal-centered around your efforts rather than on results that may not be fully under your control. For example, if you have a savings goal, focus more on the changes you’ll make to save rather than the actual financial output, so that if an emergency happens or something changes, your goal doesn’t fall apart. Rather than “I will have a healthy emergency fund by the end of the year,” which may or may not happen depending on your life, instead choose a goal of “I will put money aside each week for my emergency fund,” which is focused on your efforts.
Make sure that the outcome is measurable
It should be obvious whether you succeeded in your goal or didn’t, and the easiest way to do that is to give yourself a numerical goal. As noted above, this goal should be oriented around your effort rather than the overall outcome. So, for example, you might have a goal of “I will put money aside for an emergency 50 out of 52 weeks this year,” which focuses on your efforts and is very measurable. Aim to make that number easy to achieve by automating it.
Identify specific, actionable steps you can take
A final thing to consider with your goal is to think about the specific actions you will take to make this goal happen. What exactly will you do differently each day or each week to make this happen that you’re not doing right now? For example, with the emergency fund goal above, you’re moving money into that savings account each week. That’s your weekly action, and if you choose to automate it, the process of setting up an automatic transfer is another action you can take for your goal. Think of your goal entirely in terms of your specific actions that you’re doing and focus your goal on those rather than the big outcome.
Too long, didn’t read?
There are lots of great personal finance goals out there, like saving for an emergency fund, making a budget and sticking to it, creating a financial plan, and saving for retirement, but it’s often a struggle to stick to these goals. You can make them easier by creating goals customized for your life using the SMART strategy, making the goal specific, measurable, actionable, realistic, and time-limited. Focus the goal on your efforts and action as much as possible and less on things outside your control, and make it clear what you should be doing each day or week to succeed in this goal. That way, the path to success is less likely to be disrupted by unexpected events.
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