While goal setting is integral to financial management – for investing, saving money, controlling your spending, or even deciding how much to borrow – it can be a difficult task. At the end of the day, the goals you set need to make sense to you, be achievable, and set you on the path of financial well-being.
Let’s begin with the basics. Why do we need to set goals? If you don’t have a specific target, or something to work towards, then you most likely will end up spending more than you should and will fall short when you have an unexpected bill or loan payment that you forgot. Working towards a financial goal ensures that you do not depend on a credit card for the unexpected or get caught up in the cycle of endless payments.
Believe it or not, there is a science to successful goal setting. This blog will tell you how to set your goals scientifically to make your financial planning fool-proof.
Successful financial planning begins with self-concordance, which means the goals you set must hit a cord emotionally or fit with your interests and underlying purpose. To cite an example – do you set your own goals, or do you adopt the same goal as your spouse, friend, or pick up an idea from a social media post? If the goal does not really motivate you to achieve it, then you are probably wasting your time.
This is what self-concordance does, as a principle of successful goal setting – it encourages you to have goals that really matter to you, not because your friend or partner “said so.”
A goal that is aligned with your interest and values is worth achieving and makes it more meaningful when attained. So, if you want to invest time, effort, and money into achieving certain financial goals, then make sure they represent who you really are.
Without exact, meaningful goals you may as well be shooting in the dark. One way to go about it is using the “SMART” method of goal setting.
The SMART method began in the early 1980s and is still a popular way of goal setting and used widely in business management.
By making your financial goals specific, measurable, achievable, relevant and time bound, you are planning for success.
Making sure that your goals conform to the SMART framework is easier than you think. Here is an example of how you can turn a plan like “I want to save money so I can do a degree” into a SMART savings goal:
SMART can be a complicated framework for some, bringing us to the next scientific approach to financial planning – implementation intentions. By simply formulating a specific plan on when, where, and how you will achieve a particular goal, removes complexity and stress. These plans take the form of "if-then" statements that link situational cues with goal-directed behaviours.
Such a goal is attainable and gives a specific plan of action, allowing more people to follow through their financial management.
A little self-reflection never hurts, particularly when you are trying to save more, spend less or invest, leading us to the principle of mental contrasting.
Achieving your financial goal has a lot to with the mind and so this psychological technique works wonders for many. It can be combined well with implementation intentions, using a compare-contrast framework.
Essentially you identify and imagine a desired future, and contrast it with your reality, enforcing a positive attitude. Then find the obstacles blocking you from attaining that future and work around them.
We all crave the social connection. The support you receive from your family, friends and partners motivates you to create your goals. Rely on your social circles for emotional encouragement, practical assistance and keeping you accountable. People who have stronger social support are more likely to stick to their intentions.
You might be wondering why self-compassion in this list. We all make mistakes, and the same goes for our financial planning. Sometimes we falter, miss deadlines, and encounter unexpected spending that may interfere in our savings plans. Being kind to yourself in the face of unachieved targets is a big step forward in increasing your motivation to get back on track. It may delay your plans, but your goals should be achieved.
Just remember, the sooner you set your goals, the sooner you can actively work towards achieving them with focus and determination.