Goal Setting

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A practical, evidence-based guide to defining your goals, taking action and staying on track.

Most of us have things we would like to achieve.

Perhaps you want to retire comfortably, pay off your home, travel more, improve your health, change careers, help your children financially or simply create more freedom to enjoy life.

But there is an important difference between wanting something and having a plan to achieve it.

That is where goal setting comes in.

A well-defined goal gives you something to work towards. More importantly, it helps turn a broad ambition into practical actions that can be planned, measured and reviewed.

Why is goal setting so important?

Goal setting isn't simply a motivational technique. There is considerable research behind it.

Psychologists Edwin Locke and Gary Latham spent decades researching the relationship between goals and performance. Their research found that specific and challenging goals generally lead to better performance than vague goals such as simply trying to “do your best”, provided people are committed to the goal and have the necessary skills and resources to pursue it.

Their research suggests that goals can improve performance in several ways. They help direct our attention, encourage greater effort, improve persistence and encourage us to develop strategies to overcome obstacles.

FOCUS Direct attention

EFFORT Encourage action

PERSISTENCE Keep going

STRATEGY Find solutions

A useful way to think about it

A goal gives you a destination. A plan provides the route. Regular reviews tell you whether you are still heading in the right direction.

That is particularly relevant to financial planning. Saying “I want to be financially secure” is a worthwhile aspiration, but it does not tell you what financial security actually looks like or what needs to happen to achieve it. A more clearly defined goal gives you something tangible to plan for.

Step 1: Start with what is important to you

Before worrying about numbers, deadlines or strategies, start with a more fundamental question:

What do you actually want your future to look like?

Your goals should reflect what matters to you, rather than what you think you should be doing.

·        I want the freedom to retire while I am still healthy enough to travel.

·        I want to pay off our mortgage so we have greater financial security.

·        I want to spend more time with my family rather than working as much.

·        I want to take an overseas holiday every two years in retirement.

·        I want to help my children buy their first home.

·        I want to improve my fitness so I can remain active as I get older.

Money is often not the real goal. It is simply one of the resources that can help you achieve it.

For example, accumulating $1 million in super is not necessarily the goal. The real goal might be having sufficient income and financial confidence to retire at 65 and enjoy the lifestyle you want without constantly worrying about money.

Step 2: Turn the idea into a clearly defined goal

Once you know what you want to achieve, make the goal specific enough that you can build a plan around it. A useful framework is SMART:

SPECIFIC	Clearly define what you want to achieve.
MEASURABLE	Decide how you will measure progress and success.
ACHIEVABLE	Make it challenging but realistic given your resources and circumstances.
RELEVANT	Connect it to something that genuinely matters to you.
TIME-BOUND	Set a target date or timeframe.

Instead of “I want to save more money”, try “I want to build a $20,000 emergency fund”. If you currently have $8,000, there is a measurable $12,000 gap to close.

Research into goal-setting theory supports challenging goals, but it also identifies ability, commitment and task complexity as factors affecting whether goals improve performance.

Step 3: Break larger goals into smaller milestones

Long-term goals can seem overwhelming. The solution is to break them into smaller, manageable steps.

THE GOAL $30,000 family holiday

→

3 YEARS $10,000 per year

→

36 MONTHS approximately $833 per month

→

THE ACTION automatic monthly saving

The question changes from “How are we ever going to save $30,000?” to “Can we find approximately $833 each month to put towards something that is really important to us?”

Step 4: Turn the goal into an action plan

For each goal, decide what needs to happen, what action you will take, when you will do it and how you will know it has been completed.

·        Open a separate savings account.

·        Arrange an automatic transfer of $833 each month.

·        Direct part of any bonuses or additional income towards the account.

·        Review progress every three months.

·        Adjust the savings amount if circumstances change.

From aspiration to action

“We would love to take a big family holiday” is an aspiration. “We will save $833 each month into a dedicated account and review it quarterly” is a plan.

Step 5: Put your plan on autopilot where possible

One of the easiest ways to make progress is to reduce the number of decisions you need to make. Where appropriate, automate the actions supporting your goal.

·        Transfer money into savings automatically.

·        Make regular additional mortgage repayments.

·        Arrange recurring investment contributions.

·        Direct eligible contributions towards superannuation, subject to the relevant rules and your circumstances.

The principle also works outside finance. If your goal is to improve your fitness, do not simply promise yourself that you will exercise more. Put three exercise sessions into your calendar each week.

Step 6: Measure your progress

Setting the goal is only the beginning.

A meta-analysis published in Psychological Bulletin reviewed 138 studies involving 19,951 participants. It found that interventions designed to increase monitoring of progress also improved goal attainment. The effects were greater when progress was physically recorded and when outcomes were reported or made public.

The practical lesson Do not just set your goals. Keep track of them.
OUR GOAL	$20,000 emergency fund
STARTING POINT	$5,000   ■■■■ 25%
TODAY	$12,000 ■■■■■■■■■■ 60%
TARGET	$20,000  ■■■■■■■■■■■■■■■■ 100%

Your tracking method could be a spreadsheet, app, chart, diary, investment balance, mortgage balance, kilometres walked each week or a simple checklist.

Step 7: Review regularly and adjust

Life rarely follows a perfectly straight line. Your income might change. Your family circumstances may change. Investment markets move. Health can change. Priorities evolve.

1 What progress have I made?

2 Am I on track?

3 What is working?

4 What is not working?

5 Is this goal still important to me?

Sometimes circumstances or priorities genuinely change. There is nothing wrong with changing a goal when there is a good reason. The important thing is to make that change consciously rather than allowing the goal to quietly disappear.

Do not confuse a setback with failure

Progress will not always be perfect. You might miss a savings target, face an unexpected bill, experience a temporary fall in investment values or miss a month of exercise. That does not necessarily mean the goal has failed.

Ask yourself

What do I need to change to get back on track?

A good plan should be flexible enough to accommodate real life.

A simple goal-setting framework

My goal	What exactly do I want to achieve?
Why it matters	Why is achieving this important to me?
Target	What measurable outcome am I aiming for?
Timeframe	When do I want to achieve it?
Starting point	Where am I today?
Actions	What specifically am I going to do?
Milestones	What progress should I have made along the way?
Measurement	How will I track my progress?
Review	When will I formally check whether I am on track?
Adjustment	If I am behind, what can I change?

Your goals should drive your financial plan, not the other way around

When it comes to financial planning, numbers are important, but they should not be the starting point. The starting point should be your life.

What do you want to achieve? What would make life better? What are you looking forward to? What are you worried about? And what would financial security allow you and your family to do?

Once those things are clear, the financial strategy can be built around them. That may involve saving, investing, superannuation, managing debt, retirement planning or protecting your family. But these are strategies, not the ultimate destination.

Your goals provide the reason for the strategy.

Start with one goal

You do not need to map out your entire life today. Choose one thing that genuinely matters to you. Write it down. Put a timeframe around it. Work out your first step. Then start.

Because the biggest difference between a goal you hope to achieve and one you are actively working towards is often very simple: a plan and a first action.

Ready to turn your goals into a plan?

Whether your goal is to retire comfortably, become debt-free, travel more, help your family or simply feel more confident about your financial future, knowing what you want to achieve is the first step.

The next step is developing a clear plan to get there.

At Your Financial Guardians, we help you identify what is truly important to you, understand where you are today and develop a practical financial strategy designed to move you towards the future you want.

Because good financial advice is not just about your money. It is about what you want your money to help you achieve.

LET’S START A CONVERSATION

If you would like to talk about your goals and how financial planning could help you achieve them, we would love to hear from you.

Call me on 07-38060695 or email: info@yourfg.com.au

Sources

Locke, E. A. and Latham, G. P. Building a Practically Useful Theory of Goal Setting and Task Motivation: A 35-Year Odyssey. American Psychologist, 2002.

Harkin, B. et al. Does monitoring goal progress promote goal attainment? A meta-analysis of the experimental evidence. Psychological Bulletin, 2016, 142(2), 198-229. DOI: 10.1037/bul0000025.