Some links below are affiliate links, meaning we receive a commission if you make a purchase using the link. Phippen Tax only recommends books Xa or Patrick personally read or enjoyed, or products they personally found useful.
With each new year comes the overwhelming buzz about resolutions for the upcoming year. New years provide a new start, what many view as a reset point. You can (and should!) set goals for various lengths of time based on when they are most relevant to your circumstances. That said, financial goals are some of the best long-term goals since setting up healthy finances is more of a marathon than a sprint for most of us. Additionally, tools exist that can help you set financial goals that avoid the most common failure points of other types of goals.
Why We Fail to Achieve Goals
Individuals fail to achieve goals because motivation ebbs at unpredictable moments. If your goal relies on enduring motivation, it will fail. I say this as a goal-driven person most frequently described as “tenacious” and “motivated.” If my goals relied on daily motivation, I would fail to achieve them.
How do we achieve goals if motivation is not the key? When folks call a high-achiever motivated, they are misinterpreting discipline as motivation. Discipline is the glue that keeps a goal-seeker on the track to become a goal-achiever.
From a fitness perspective, discipline means showing up to the gym. Anybody can show up to the gym. Motivation shapes what you do there. On their most unmotivated days, a disciplined person may do a 20-minute maintenance workout. On high-motivation days, they may spend an hour at the gym and even perhaps add some extra push ups or drop sets to a planned agenda. While motivation is important, and certainly makes a difference, motivation gets you nowhere without discipline.
The more a goal hinges on discipline rather than motivation, the more likely you are to succeed.
Why Financial Goals are Easy to Achieve
Many financial goals are easier to achieve than other types of goals because tools exist that require only one moment of motivation to trigger years of disciplined financial efforts. How?
Say your goal is to save and invest 15% of your income from a consistent W-2 job for retirement. Your employer likely has a 401(k) or comparable investment option where you can sign in to a website and elect to contribute 15% of your income to a 401(k) automatically each paycheck. This one-time decision made in a few motivated minutes can provide you the discipline to invest 15% of your income towards your retirement for years, until you decide to change it!
Identifying an automated tool that facilitates your financial goal keeps you automatically disciplined without thinking about your goal. Set it, forget it, and enjoy your good decision.
Setting a Great Goal
A great financial goal has two components. First, a great goal is realistic. If you currently live paycheck-to-paycheck and do not anticipate a significant change of income or lifestyle change, saving 50% of your income is not a realistic goal. On the other end of the spectrum, if you currently save 60% of your income, saving half may be too easy. However, if you currently save 30% of your income and plan to downsize your apartment to realize some savings next year, saving 40% or 50% of your income may be a realistic goal.
Your financial goal should challenge you to rethink your finances and challenge you slightly while also stretching you just enough that the smart financial change can be absorbed into your lifestyle with limited discomfort. Little discomfort is not no discomfort. A great goal requires a lifestyle adjustment, but an attainable one.
Second, a great goal is measurable. What is the most common failed financial goal?
“I want to save more money this year.”
☹
WHAT does that mean? Did you save anything last year? If not, does that mean you could walk into the street, find a quarter, keep it until December 31, 2023, and say the goal was met?
Instead, decide to save or invest a certain percentage of your income. “I want to save 7% of my income in a 529 to save for my child’s college education,” is a much more meaningful goal. “I want to pay my debt down by $10,000,” is also a great goal.
Goals are unique to an individual or family’s situation, but they should include realistic growth, and they should be measurable so you can determine whether you are on track to meet your goal.
Bonus Content: Here are some sample goals. These should in no way limit your own goal making but are here to provide examples if you are struggling to pick a goal that is right for you:
-Pay $100/$437/$750/$5,000 towards debt each week/month/paycheck.
-Contribute the maximum to a 401(k) in 2023. (More on how to maximize accounts coming next week!)
-Save $X in a high-yield savings account to accumulate a six-month emergency fund by the end of 2023.
-Spend at least 5% of my income on travel and experiences in 2023. (Yes, you can have goals to encourage spending on things you love too!)
-Limit the money spent on dining out each month to $200/month.
-Resolve and pay all back taxes owed to become up-to-date in 2023. This can be a huge goal! If you have an overwhelming amount of back taxes, schedule an appointment with Patrick to seek help.
-Organize financial accounts and prioritize financial allocations by following the Phippen Tax Financial Accounts Series. For a more in-depth overhaul of financial organization with specifics about where to open certain types of accounts, read Ramit Sethi’s I Will Teach You to be Rich.
Kommentare