Make SMART Goals
Last time, I wrote about the need to set goals as the starting point in devising your financial plan. So did you do your homework?
Was it hard to do? I hope not. In any case, in this issue, I want to share with you how to set the right goals, or to be precise, set goals the right way.
Remember I listed down the five common goals people set? Well, did you realize that most, if not all, require money? Obviously, you need money to acquire stuff, travel, and give away.
Even goals for your career or work may require money. If you're going into business, certainly that requires capital or even just regular expenses (in case your business doesn't really require capital to start). Even if you're working for somebody else, sometimes it also requires money to improve your knowledge and skills.
Sure, you don't need money to become your ideal self. But sometimes, you may have to spend for books and seminars on self-improvement.
So there. Almost all your goals require money. Therefore, it is imperative that you link your financial strategies to your goals. Again:
Match your money strategy with your life goals.
Now, go back to your list of goals. Anything wrong with them? Are those all your goals in life? If it's hard to think of everything you need and want in life, try this approach:
Option 1: Sketch a timeline
Draw a long line on a piece of paper. The beginning of the line represents your age now. The ending is an arbitrary age in the future, say 65. Cross the line with short, vertical lines, with intervals of 1, 2, 3, 5 years, it's up to you.
Here's your life in a timeline. Jot down age intervals. Every 5 years for me is good enough. Now, think about the major milestones you expect and want in your life. Consider each of the five types of goals here. Maybe 5 years from now, you want your own house. Next year, you're planning to have a baby. Two years from now, you want to go to Europe. By age 40, you want to put up a business. After 12 years, your son will enter college. You want to retire by age 55. By age 60, you plan to put up your own foundation. And so on.
Now, you have a big picture of your life goals, right? Not only that, the timeline gives you an idea which goals to prioritize.
If you don't want to draw a timeline, try this other approach:
Option 2: Make a classified list
Here, on a piece of paper (or on Excel or Word) just make three headings: short-term, medium-term, and long-term. Short is less than a year. Medium is one to three years. Long term is anything beyond three. Then, under each heading, list down your goals. Whichever approach you take, you'll get a more complete list and a better sense of priority.
Note that the further in time you go, the harder it is to list goals. That's okay. The list is not meant to be exhaustive and final. The fun thing about it is you can always change, remove, and add goals as you go along.
Finally, I want you to go back to each goal you wrote and refine each. How?
Make SMART goals. You've probably heard about this before. To refresh your memory, SMART goals mean:
Specific. A goal like "to travel abroad" or "to retire comfortably" is not useful. Where do you want to travel? How much would you need? When do you want to retire? What do you mean by comfortable? Be very specific, detailed, and well defined.
Measurable. As I mentioned, most of your goals have a monetary value. You will know you can achieve your life goals if you attach money goals (which can be measured) to them. That way, you can track how near or far you are in achieving them. So instead of writing "to travel to Europe", find out how much it would cost to go on a European tour" and write "to travel to Europe on a 15-day package that costs $2,000". Ask "how much?" or "how many?"
Attainable. Some say "A" stands for "Agreed Upon" or "Acceptable". If you're sharing your goals with your partner, then it's important that you both agree to them. But it also stands for "Attainable", meaning you know your goals can be done.
Realistic. Your goals may be attainable but if you've set plans that require more than you are able to do, then they're not realistic. For instance, becoming a millionaire is attainable, but if you're working from scratch, becoming one next week is not realistic.
Time-specific. Set a specific date for each of your goals. Don't use words like "in the future", "some day", "when I'm old", "after I retire", "soon" and the like. Set a year, a month, or even a day. Don't write "buy a Honda Accord next year". Write "buy a brand new P1.2 million Honda Accord 2.0 VTi-LT on September 2005".
So, there you go. When you're done with this exercise, I hope it has helped you have a clearer picture of what you want in life. It is just the first step in taking control of your finances, but it will be the glue that will keep everything together.
Next week, I'll talk about Principle #2: "It's not how much you earn, it's how much you get to keep."
