It is not enough to simply wish “to retire rich” and cross your fingers that you will somehow get there. It is essential to define your financial goals to give yourself a clear picture of where you’re heading and what needs to get done to arrive there.
The following 4 steps will guide you with your goal setting exercise:
- Be S.M.A.R.T .This acronym stands for Specific, Measurable, Attainable, Relevant and Time bound. Your defined goal should be Specific. It requires that you answer questions such as “What do I want to accomplish”, “why?”, “who is involved?”, “where?”. Measurable entails stating “how much?“ or “how many?”. Putting a measure on your goal will allow you to gage your progress and know when you have achieved it. Attainable means that the goal is not unrealistically out of reach. Relevant implies that it is a goal that matters to you and is true to who you are. Time-bound is the deadline you are giving yourself to achieve your objective. For example, a SMART way of putting “I want to retire rich” would be “I want to retire at the age of 55 in the Bahamas, be 100% debt-free and have accumulated $1 million worth of properties, investments and cash”.
- Time it: When defining your goals, you should think of different time periods. You can have a financial goal that you want to achieve in the next year (short-term example: “accumulate $1000 in my emergency fund”), some in the next 5 years (medium-term example: “pay off $20,000 of credit card debt”) and others to achieve in 10 years or more (long-term example: “pay off the full balance of my mortgage”)
- Prioritize: You will likely have multiple goals in each timeframe. Hence, it is crucial to prioritize them as High, Medium and Low. Then you can direct all your focus on the high priority ones first. Prioritizing your goal is a matter of identifying the best allocation of your money at any given time.
- Keep them visible: To follow through with your goals, you need to remind yourself often of them. I recommend to my clients to write them on a post-it note and stick it visibly in their wallet. Review them at least once a year and update them as necessary.
Lastly and most importantly, you ought to align your daily actions with these goals. The trick is to have a savings/spending plan totally in-sync with your desired outcomes.