A large part of having a successful financial future starts with some planning. In order to plan for something, you need to set a goal. Setting the ‘right goal’ rather than just setting ‘a goal’ can make a significant difference. So how can you make sure that the goals you set are ones that will help you the most?
In our experience, there are two main types of people when it comes to goal setting. There are those that know what their goal is but might lack direction and discipline to get there (i.e., knows the end but doesn’t have the means to get there). Then there are those who are disciplines and are going through the motions but don’t have a central goal (i.e., they have the means but haven’t determined the end.)
If we transpose both of the above types into savings goals they may look something like this; Person 1, “I want to be a millionaire but have no idea how to do it.”; Person 2, “I have been saving a ton of money, but have no idea why or what for.”
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It is our belief that with a little bit of coaching and some proper goal setting, both of these people can achieve success.
The Psychology of Goal Setting
Outside of the obvious benefit of setting goals so you can achieve them, there are other benefits. Setting goals is linked to higher motivation, self-esteem, self-confidence, and autonomy.
Goal setting in psychology refers to a successful plan of action that we set for ourselves. It guides us to choose the right moves, at the right time, and in the right way.
There is a strong connection between people who set goals and their rate of success. Those that set goals generally also have a more positive outlook and can see the silver linings. They are more likely to perceive failures as a temporary setback and not a personal shortcoming.
There is a great quote related to this:
I have not failed. I’ve just found 10,000 ways that won’t work.Thomas A. Edison
In a study conducted on working professionals, Edwin A. Locke, a pioneer in the field of goal-setting, found that individuals who had highly ambitious goals had a better performance and output rate than those who didn’t.
In addition, Psychologists and mental health researchers associate goals with higher predictability of success for the following reasons:
- Goals involve Values
- Goals bind us to Reality
- Goals call for Self-Evaluation
Setting Smarter Goals
Although everyone has different aspirations and talents, the formula for successful goal setting is fairly standard. In a sense, you can critique a goal and how good or bad it is.
George T. Doran coined the S-M-A-R-T rule back in 1981. Since then, researches have added the E-R. S-M-A-R-T-E-R of goals stands for:
- S (Specific) – They target a particular area of functioning and focus on building it.
- M (Measurable) – The results can be gauged quantitatively or at least indicated by some qualitative attributes/ This helps in monitoring the progress after executing the plans/
- A (Attainable/Achievable) – The goals are targeted to suitable people and are individualized. They take into account the fact that no single rule suits all and are flexible in that regard.
- R (Realistic) – They are practical and planned in a way that would be easy to implement in real life. The purpose of a smart goal is not just providing the plan, but also helping the person execute it.
- T (Time-bound) – An element of time makes the goal more focused. It also provides a time frame about task achievement.
- E (Evaluative/ethical) – The interventions and execution follow professional and personal ethics
- R (Rewarding) – The end-results of the goal-setting comes with a positive reward and brings a feeling of accomplishment to the user.
This goes well with what we have said in past articles that a financial goal needs to have a monetary amount and date attached to it.
How to Set Goals
When setting goals there are certain things you can do to increase your chances of follow-through and their effectiveness. In addition to setting S-M-A-R-T-E-R rules, below are some tips:
Set Goals that Motivate You
As a kid, it is really easy to take on the goals that your parents or others project on you. Maybe your parents tell you would be a great doctor, teacher, lawyer, etc. and now that is your goal.
It is important that when you set goals that they are your own. Make sure the goals you set are truly yours and that they aligned with your desires, beliefs, values, etc. When your goals are attached to something that deep it is a lot easier to stay motivated and follow through.
Write it Down and Tell a Friend
When you have determined what your goal is and why it is your goal, write it down. By writing it down it serves as a reminder. It also makes your brain see it as something more important than just a random idea you once had.
If you struggle with follow-through and commitment, talk to a friend. Tell them your goals and ask them to keep you accountable to them.
Don’t just write down what the goal is but write down why you want to achieve it. If and when you get to the point where you no longer feel motivated, review this. When you read your ‘why’, is it still relevant? If not, maybe your goals have changed slightly. This isn’t a bad thing. As we age and mature, our desires, goals, and values often shift.
Determine a Starting Point and Action Plan
When you have determined what you want to achieve, you need to figure out the best starting point. You know yourself better than anyone. Determine a starting point that works for you.
If you are someone who likes control and doesn’t like change, starting can be the hardest part. You may want to make sure that all your ducks are in a row first. That is great it theory, however, sometimes that never happens. It is better to start and stumble than to never start at all.
When you have determined a starting point come up with an action plan. Figure out what steps you all need to take to achieve your goal. For longer-term goals, these steps may change, but it will at the very least, put you on the right path.
This is something that is especially useful for larger goals. When goals have a long timeline or are more involved, it can be hard to stay motivated.
Break those bigger goals into smaller more obtainable goals. A series of smaller, more obtainable goals helps create a more defined action plan. Taking one step at a time makes it feel as though you are making more progress, counting your small achievements along the way.
To continue to be motivated, put small rewards at the end of each checkpoint. After you achieve “step one” you get to buy “x” that you have wanted for a while or go on a mini holiday. One thing to note is that the rewards should be small enough where they won’t put your end goal at risk or draw out your timeline.
In the end, your goals have to align with your ethics, beliefs, and values. If they don’t, achieving them will be extremely difficult. Furthermore, your goals should be specific to you. It’s okay to ask for advice and opinions but make sure that at the end of the day it is your goal, not someone else’s goal for you.
Lastly, remember to be SMARTER when setting goals. Doing this will give you the best chance at successful completion. However, if you don’t succeed at first, don’t see it as a failure. You merely just found one way not to achieve your goal.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy