How to Change Your Life By Setting Financial Goals

So how are you getting on with your New Year’s resolutions?  Yes that’s right, all those promises that you made to yourself back in January about doing more exercise, eating healthier food and cutting back on spending. We are now more than half-way through the year and for many, those good intentions are long forgotten and mentally-shelved, only likely to be temporarily dragged back to the front of the mind next January, which is a shame because resolutions can be a powerful way of changing our lives for the better.

Photo by Jean-Louis Zimmermann via Flickr

The Power of Setting Goals

Effectively resolutions are goals, something that we want to achieve and by having goals in life we have something to focus our energies on.  By setting realistic, but equally challenging goals and creating plans to achieve them, it is possible for us to proactively improve the way we live, whether the goal is to lose weight, move to a bigger home, go on a world-wide trip, start a family or whatever else we feel is most important.

My Goals in Life

I have a number of goals, many of which are financially related and tend to revolve around increasing my income, reducing my costs or saving up for a cool trip abroad.  I also try to use the principles of SMART goal-setting.

Visit New York

For example one of my short-term goals this year is to visit New York (I live in England by the way), therefore my goal looks like this:

  • Specific – Save for a trip to New York
  • Measurable – I’ll need about £1,100 for flight, accommodation and spending money
  • Achievable – Yes, I can afford the cost by putting aside some money each month
  • Realistic – Yes, this is not a trip to the moon and back
  • Timely – I want to go late November / early December of this year

The financial plan for achieving this goal is simple.  From January onwards, all I have had to do is put aside £100, so that by November I will have covered all my costs.  I can also stagger the expenditure, buying the tickets first by the end of July, booking the accommodation by the end of September and having my spending money ready by November.

Salary Increase

Another short-term goal I had at the start of the year was to increase my salary by 20%.  I knew that in the current economic climate my employer would not support such a significant raise, so the alternative was to look for new positions in other businesses.

In short I went through the motions of distributing an updated CV to all the major job boards and began networking with a number of recruitment agencies.  After a couple of interviews I finally landed a job working for a close competitor and managed to exceed my original goal.

All this resulted from making a decision to make a change and then pro-actively putting that change into place.

Knowing Where You Are

Setting goals and determining ways to achieve them is very similar to finding your way around with a map.  Your destination is your goal and your route is your plan on how to get there, but all this is useless if you don’t know your current position.

The same applies with your finances; you can’t work out a plan for getting out of debt if you don’t know how much you earn, how much you owe and how much you have in savings.

The way to understand where you currently stand financially is to create a budget, which is the financial equivalent to GPS or a signpost.  Your budget will tell you:

  • How much you earn each month
  • How much you spend each month
  • How much money you owe in debts
  • How much money you own in savings and investments

Only with this information in my budget was I able to be certain that I could afford to put aside an additional £100 a month for my New York trip.

Tracking Progress Towards Your Goals

In addition to determining the viability of your goal and how best to achieve it, your budget also enables you to keep track of progress.

Every month I update my budget to record how much money I have spent and how much I have saved in my account.  I don’t bother recording every expenditure, but I know what my essential costs are (such as mortgage, electricity, water, etc.) and I know how much I allow myself for non-essential spending (such as going to the pub, buying clothes, etc.).  So if I am exceeding those figures I can look in more detail and understand why.

My budget was also my key tool for getting myself out of the huge debts that I had accumulated a couple of years ago.  My goal was to become debt-free (apart from my mortgage) and by listing out my monthly spending and earnings I was able to reduce or remove unnecessary expenses and focus that additional money on paying off my debts.

Knowing how much I owed and how much I could re-pay each month, I was able to work out how many months it would take to pay off the debt and then keep track of my repayment progress.

Setting Financial Goals to Change Your Life

Although New Year’s is a natural time for resolutions, you don’t need to wait till next January to set your goals and the sooner you think of clear goals, the quicker you can begin achieving them.

Ideally your financial goals will be driven by what you want to do in life.  So if you are hoping to buy a house, your financial goals will focus on saving up the deposit, paying off any major debts and possibly raising your income in order to afford the mortgage payments.  It may take you a couple of years to achieve this goal, but at least if you know what you are aiming towards you can really focus your energies.

It also helps to categorize your goals into the long, medium and shorter-term’s:

  • Long-term goals – These will likely be 20 to 40 years into the future and fairly broad.  Here you need to ask yourself what you want the final years of your career and retirement lifestyle to be like and then consider a plan for funding it (such as a pension, savings, investments, buy-to-let property, etc)
  • Medium-term goals – Think about the next 5 to 10 years and the types of things you will want to do, such as buy a house, get married, start a family, start a business, etc.  What sort of savings and income will you require to achieve these goals?
  • Short-term goals – What do you want to achieve this year and next year?  These goals may include paying off your credit card debt, going on a foreign trip, buying a new car.  What can you do savings-wise to ensure you don’t need to borrow money to pay for these activities?

Once you have decided on your goals, start making your plans for achieving them.  In some cases you may need to seek advice from experts, such as financial advisers or from further reading of books and resources on the web, but don’t let that stop you from making and implementing your plans as soon as possible, as you can always refine them later on.

About the Author

By , on Jun 30, 2010
John Suter writes for Money Saving Challenge and challenges his readers to save up to £250 a month without compromising their current standard of living. Visit his site for money saving ideas and advice on clearing your debts and growing your wealth. You can also download a free budget template to help you begin budgeting.

Leave Your Comment (12 Comments)

  1. Leighton says:

    I think that setting financial goals is very important to an individual. It drives them to success and gives them inspiration to do better.

  2. John Suter says:

    Hi Sam – interesting point. I would definetely agree that you cannot take general media reports of financial doom & gloom as a pure indication that there are no new opportunities out there.

    The fact is that different people will have different experiences and it is a case of pro-actively going out to find the opportunities, rather than waiting for them to find you.

    What I didn’t write in the article was that prior to finding my new job, I had slogged it out on an extremely challenging project for over a year and half, and therefore had built up massive amounts of knowledge and experience. The goal i had set at the start of the year was to utilise this experience and find a better paying job.

    If i had not worked on the project and set the goal, i would probably still be in my old job now….

  3. It definitely seems like the economy is strong, as demonstrated by your ability to get another job with a 20%++ increase in pay raise.

    This is why I think a lot of people are fooling themselves. So many people are doing so well, the mass media is just making people afraid.

    Best,

    Sam

  4. Jenna says:

    Anytime. Holiday travel – always a little bit of a extra hassle.

  5. John Suter says:

    Hi Guys, thanks for your great comments and the additional tips. I think everyone has their own way of visualising & tracking goals, and you need to do what suits you best.

    Some people like to write things down, other like to use pictures and images – the Ferrari on my screensaver being one such image – but probably not something i’ll achieve in the short-term :)

    I think the points about breaking goals down into short-term and daily milestones are also really good.

    Thanks Jenna for the Thanksgiving tip – will bear that in mind too :)

  6. Kristine says:

    Very true. Setting goals gives our mind direction as to what we want. Our minds are great goal-seeking mechanisms. I truly believe that all things are created twice, first in the mental realm, then in the physical realm.

    Oh, and writing down your goals and looking at them daily is added reinforcement for your subconscious mind. It helps to keep us stay focused. :)

  7. Kris says:

    What a great post!

    I think you will really enjoy New York when you are planning to go. We have gone twice in December and had a great time.

    Having measurable goals is so important, as is breaking it down into attainable milestones if it is a huge goal. Like our retirement for instance. We have a general goal of retiring at 55 with a certain amount of money. But if we just looked at the big picture, we wouldn’t feel like we are accomplishing much because it is so far away. So we celebrate the smaller milestones along the way.

    Good job on finding that higher paying job. I am convinced that changing jobs is the only way to get ahead in this economic climate anymore.

  8. I believe life is all about setting goals for yourself and trying your level best to achieve them. The easiest way is to set short term goals for yourself like, ‘ I have to complete my day’s work by the time deadline’ or ‘ I have to save fifty dollars by the weekend’ etc. can help you do your work easily. Thanks for the beautiful post!

  9. Timothy Ng says:

    I can’t agree more with the power of setting goal in life. The key is to break your goals up into daily micro-goals so they are more achievable in the long-term.

  10. Jenna says:

    Congrats on the slight career change and pay raise! One thing to consider when purchasing tickets in late November to come to the States – you need to consider that tickets might be higher because of Thanksgiving. Just a heads up.

  11. kt says:

    for the past year, my goal was to make the most money that i could. I worked so hard and did not make as much as i wanted to make so i feel as if i wasted a full year of my life. The upside is that i saw that this millionaire status is so very over rated. Most that have dedicated to make fortunes have very bad lives and thank God that he gave me enough wisdom to realise this after just a year. As of now i just want to live life for God and make a good living from my internet business(it is actually biblical to make a living and mind your own business). I would also like so much to travel; i haven’t done much traveling and i hope to travel more in the near future. Another goal that i have is to get wiser and more knowledgeable. This has means that less mind numbing tv and more reading. God is giving me grace to do this because there is always a book that i am reading and learning new things. In a nutshell

  12. Donny says:

    I think that it is very important to set small monthly goals and then work off of those

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