Create a Personal Finance Goal
We all have different personalities, interests and goals in life, and because of this our Personal Finance goals differ as well. Think about what is important to you, and create goals based on that. But there’s no pressure! You can change your goals at any time if your priorities change. When choosing a personal finance goal, there are a few things you should do to make sure you can stay motivated and obtain it. These rules apply to making goals for pretty much anything; the acronym is SMART:
- Specific – set specific goals, this will help provide you direction and give you a plan
- Measurable – set goals that you can definitively measure. This allows you to track progress towards a goal and feel more of a sense of achievement upon completing it
- Attainable – set a goal you can reach. If you feel you can reach a goal, you are much more likely to stay motivated than if you chose something impossible. For goals that take a long time to achieve, set milestones in between so you can really feel the progress along the way
- Relevant – Set goals that are aligned with your other life goals. If you set personal finance goals that disagree with the way you want to enjoy life, you’ll either be miserable or quit.
- Time-Bound – set time limits that you hope to achieve your goals by. They should be realistic, but time constraints help you stay on track.
Every goal needs an action plan on how to attain that goal. This will be the journey you take to complete the goal, and you have already started the first step by learning about person finance! Just like your goal, the journey should be SMART. If your personal finance goal was to save $1,000,000, it would be difficult if you didn’t have steps along the way. Set milestones, break it up. It’s just as much about the journey as it is the destination. Start with a goal of $25,000. Achieve it. Get some iced-cream or something. Next goal: $75,000. Achieve it. Go out for dinner. Next goal: $150,000. Achieve it. You get the point. So put those steps in your plan, and enjoy the journey just as much as the destination. Don’t forget to reward yourself for success along the way.
I currently have the equivalent of 1 month of expenses saved up, $2500 in credit card debt and a mortgage of $250,000. My first goal is to eliminate my credit card debt in 3-5 months by paying off $800-$1000 a month. My second goal is to build my emergency fund up to 6 months worth of expenses. I am giving myself 12 months to complete this. I can do this by reducing my spending down by 20%, which will be my third goal. I am aiming to reduce spending by 5% every 3 months until I get to 20%. My fourth goal is to pay off my mortgage in 11 years. I am giving myself 5 years to pay off half the mortgage to $125,000. I will then take a year break from extra mortgage payments to relax, then begin the final 5 years. After my 4th and final goal is complete, I’m going to use half of the extra money (that used to go towards my mortgage payments) for travelling and vacations. This will be my reward for completing my goals. I’ll put the other half in a TFSA or RRSP to help save for retirement.
Finish creating your goal? Send it to us! Be proud that you are taking control of your personal finances!
Now you have a goal and a plan. It’s time to start achieving! You will need to track your progress. Depending on your goal, you will be tracking different variables. VIP Finance offers a few different free spreadsheets you can download to track things like: net worth, savings rate, budget. If you have historical data you managed to find, try back filling in the data as well. You’ll be surprised how much better the future data looks in comparison now that you have a goal and a motivation to achieve it! Create a schedule to update your progress (I do monthly, it doesn’t take long this way and keeps me focused) and stick to it. With that in mind, unless you can handle the ups and downs of the stock market, it is sometimes best to update information like retirement funds less often. Once or twice a year is plenty for those long term investment accounts. Watching accounts you don’t have much control over monthly can be a stressful and non-productive activity for some people. If you are one of those people, knock back the frequency. It won’t hurt your journey to completing your goals, and will help you reduce stress – which is what you want from financial independence!