Budget Success Part 1: Defining a Goal

Ah, February. The month where New Year’s Resolutions go to die. February is the perennial month where people give up on their good intentions and give in to the temptation to fall back to their December habits. Reports show that January is the most profitable month for gyms because of the massive membership spike after the new year. They then ride that profit for the rest of the year, because it settles down substantially in February.

The trend of giving up on goals in February has become so popular that the annual resolution to give up alcohol has now transformed into the hip, new trend for “Dry January”. Don’t get me wrong, people are using Dry January to great effect and have turned it into its own sort of resolution. Instead of over committing and failing miserably, people create reasonable expectations, and use the time as a growth and learning experience.

What if we took that concept and applied it to our goals as a whole? Not the “settle for being unable to sustain a resolution all year and only do it for a month” thing, but the reasonable expectation and learning experience thing.

So often the problem with New Year’s Resolutions and goals in general is that we over commit and we set ourselves up for failure by putting undue stress and unreasonable expectations on ourselves. This applies just as much to financial health and our savings/getting out of debt goals. How many of you have made budgeting goals in 2020, only to realize 5 or 6 weeks later that you haven’t made any substantial progress? I certainly have.

In fact, every month or so, my wife and I say to each other, “We need to do better this month with our budget.” We say we’ll stick to a budget and we’ll cook our meals more often instead of eating out, or we’ll shop on Amazon Prime less (which is the best and worst service in the world simultaneously). It rarely ever happens, and when we do have some success, we typically crash a week or two later because we can’t keep it up.

So how do we fix this? How do we ever make progress? The answer lies in the process of setting goals.

If you know how to set a reasonable goal that you can measure and follow, you’ll have more success in the long run. When making a plan for something at my previous job, my boss would always say, “I need need dollars and dates.” The idea was that without a measurement and timeline attached, the plan was just an idea. You needed to be able to measure success and know when to expect certain results.

In business and in school, you will hear the phrase SMART goals fairly frequently. This is a great acronym for understanding how to set and follow goals, and this will be significantly helpful with your financial plan.

S – Specific: The first thing you need to remember about your financial goals is that they should be specific. Saying “I want to save more money in 2020” is not a goal. Instead, make the goal specific. Say something along the lines of “I want to save $5,000 extra dollars in 2020.” This gives you a specific goal to shoot for, instead of a vague idea that is hard to check against.

M – Measurable: The next part of SMART Goals is that they are measurable. This is, in my opinion, one of the two most critical pieces of a goal. You need numbers in order to check your progress. Whether it’s for weight loss, establishing a budget, or practicing some new skill more, adding measurable details to your goal will make them verifiable.

A – Actionable: Goals need to have actions attached to them. For every goal you establish, you need to create a plan for actually accomplishing it, or else you will fail before you even start. Setting actionable steps to your goals will help you work towards achieving them. For instance, with your budgeting goal, you can plan something like “I want to reduce my monthly spending by $250 by trimming my monthly bills and meal planning”.

R – Realistic: Another vital part of setting goals is making sure they are realistic. One of the main reasons people fail with resolutions or goals is that they are too difficult. We want to set ourselves up for long term success, so it is more important to set up a goal we are more likely to accomplish. What’s better for your savings in the long run – to say you’re going to save $15,000 in one year, fail after one month and only save $500 total, or to say you’re going to save $5,000 and be successful? It is better to set a reasonable goal and succeed than to set a higher goal and fail, because a reasonable goal will help you towards maintaining success and changing habits, while an unreasonable one will cause stress and likely prevent you from even approaching success. We’ll go into detail on the psychology of reasonable goals at a later date, but just remember, it’s important to set yourself up for success.

T – Time Bound: The final piece of the goal setting puzzle, and the other of the two most critical elements, is making your goals time bound. You have to have an end date in mind for your goal, or else you won’t be able to measure your success. If you say, “I want to lose 20 pounds,” you have made an excellent goal with no end date. By setting a time constraint on the goal, you are able to measure if you are on track for success, and then to move on to further goals once that date passes.

Let’s look at an example of a bad and a good financial goal for your budget or savings.

I want to spend less money this year.

This goal doesn’t really tell you anything. The only true part of the goal is the time constraint, but without measurable budgeting details, you won’t be able to really verify if you’re meeting your goal. Try something like this:

I want to reduce my monthly spending by $500 in the next six months by shopping less at online retailers and paying down my credit card bills.

This goal has actions, a time constraint, and measurable goals. This makes it something that you can work towards and hopefully achieve. That goal will result in a sustainable change and sets you up for a much higher probability of success.

Check back in tomorrow for my blog on how to deal with failing to meet your goals: Budget Success Part 2: Preparing for Failure.

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