3 mistakes my clients make when trying to set financial goals
- I work with clients on financial goals regarding debt repayment, savings growth and investment.
- Sometimes the hardest part is creating achievable goals that you can stick to and see real results from.
- Goals need real timelines and concrete milestones to achieve, as well as reminders of why it’s important.
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As a financial coach, I work with clients to achieve their financial goals such as paying down debt, growing their savings, and investing.
Setting goals for your money creates a financial roadmap – you know exactly what to prioritize and how to manage your money to stay aligned on that journey.
However, it is important to set financial goals in a way that leads to real results. Otherwise, you risk becoming discouraged and abandoning them.
Here are the top three mistakes clients make when trying to set financial goals.
1. Writing goal statements that are too vague
When I ask my clients what financial goals they want to achieve, I always hear vague statements like “I want to learn how to save my money” or “I want to get rid of my debt”.
There are two things missing from these statements: action-oriented language and specific dates and amounts.
An effective goal statement uses action oriented language such as “increase/decrease, pay, reduce” which will be measurable in its outcome, unlike passive phrases such as “want, learn or understand” which do not measure anything.
Likewise, being specific about when you will reach your goal and the exact amount you need to reach it gives you an objective end result to look forward to. This way, you can stay motivated as you take important steps toward your goal.
To give an example of these strategies being put in place, an effective goal statement would be something like, “I will reduce my credit card debt by $3,000, by August 31, 2022.”
2. Missing an Action Phrase to Start Progress
Now that we have a measurable goal statement, to start your progress by doing something to achieve that goal, we need to add an action phrase.
Continuing with the previous example – if your goal is to pay off $3,000 of your credit card debt by August 31, 2022, how much should you set aside on your paychecks each month or per pay period to achieve this ?
Work backwards from your desired end date to see how many paychecks you have left. For example, you might count 14 paychecks remaining between February and August 31. So you calculate that $3,000 divided by 14 equals about $215 per month. This means you will need to set aside $215 per paycheck for your debt in order to achieve this goal.
A complete goal statement would be, “I will reduce my credit card debt by $3,000, by August 31, 2022. I will do this by setting aside an additional $215 per paycheck for my debt.”
Now, it’s crucial to consider whether or not it’s realistic to set aside $430 per month to reach your goal.
You can do this by writing down your monthly income, then subtracting your fixed expenses for the month, like rent and utilities, then a monthly average of lifestyle expenses like groceries, dining out, and shopping. . What’s left is your surplus to spend on debt.
But if you want to increase this surplus, you can work to reduce your expenses. This can include negotiating bills, removing subscriptions and reducing your restaurant expenses, etc.
You can also find ways to increase your income to reach your goal faster, or push back the end date you originally set by a few months to give yourself more flexibility.
3. Not emotionally aligning with your goal
It can be easy to lose motivation and stay disciplined while traveling to pay off debts and grow savings.
Part of the reason is that we tend to focus only on numbers and results, forgetting our emotional connection to our goals. Here are three journal prompts to fill out once you’ve organized your goal statements:
How would you feel if you achieved your goal?
Visualize that moment when you make the final payment of $215 on that credit card, or when you transfer the final $100 to reach your savings goal of $5,000. Is it a feeling of relief? Pride?
How would you feel if you did NOT reach your goal?
Visualize yourself in September, stuck with the same amount of debt or the same balance in your savings account. What feelings and emotions come to mind: disappointment, resentment, frustration?
Why do you care about achieving this goal?
What will achieving this goal allow you to do that you cannot do now? Write this reflection down and come back to it if you’ve lost motivation or missed your payments on time.