Setting the right financial goals

13/08/2014

As anyone who's ever given up on their New Year's resolutions a month into their new calendar can attest, sticking to the goals we set isn't easy. But often the reason we aren't able to live up to our ambitions is because the way we set them at the start was faulty.

The same holds true for financial goals. Whether it's for growing your wealth or planning for your eventual retirement, setting the right goals to begin with is crucial. Here are a few tips.

Aim high

As well as having a lot of smaller goals to hit - meeting your monthly budget, hitting a certain level of savings by a particular point in time - you also want to have bigger aims that push you to do better. This could be building a healthy nest egg through seeking advice on SMSF compliance, or paying off your mortgage by investing your wealth in a diverse portfolio of investments.

Whatever it is, by aiming high you're more likely to meet the requirements you set for yourself. Even if you fall short, it still leaves in you a better position than if you'd only set goals you could easily meet.

Be flexible

Although hitting your goals is something you should take seriously, the ebb and flow of life may change your circumstances. You might fall into added debt, or you may find you need to refinance your home loan for a move, for example. Therefore, there's no need to be too hesitant if you have to scale back what you had originally aimed for.

Match actions to your goals

There are a number of elements that make a good goal. It has to be:

  • specific
  • measurable
  • realistic
  • timely

However, most importantly, it has to be actionable. Generally, if you have no way of measuring your goal and are unsure when it's been completed it means it's time to re-evaluate. There's no use setting a goal that you can't match a specific plan or activity to.

For example, if your goal is to pay off your mortgage by a certain year, you might match that with an action to make your repayments fortnightly instead of monthly.