Happy New Year everyone!! As I do every year, I spent last night reviewing my 2007 goals and created new goals for the coming year. So many people have on their list (though, many people don’t) – “create and stick to a budget” or “save money” or “spend less.”
All of these terms, while they sound great, are all extremely vague. Some people love putting these phrases/goals down as concepts, but at the same time have no idea how to effectively accomplish such. As with anything you want to accomplish, it is imperative to identify what your financial goals are.
Before the not-so-scary task of creating a budget you need to identify what it is that you want to accomplish with your money. Do you want to go on vacation? Buy a house? Go back to school? Get out of debt? Save $10,000? What?
The next step to identify is your timeframe - when do you want to do this by? The end of March? 2008? 2010? And then comes the bigger question, how are you going to save for it?
Many people (particularly overachievers) have heard of the term SMART goals. If you haven’t, SMART depicts what each goal (whether financial or not) should entail:
S – Specific
M – Measurable
A – Attainable
For me personally, I break down my financial goals into three categories – you can alter these time periods as you see fit, as this is just a general guide.
- Short Term: 1-6 months
- e.g. – West Elm desk, new Coach bag, visit friend in Alaska, save $2,000 for business school visits and application fees.
- Intermediate: 1-3 yrs
- e.g. –Trip to the World Cup in NZ, save $10,000 to live on while at business school, increase net worth by 25% by xx date.
- Long term – 5 yrs +
- e.g. – payoff student loan debt, own a house, travel to South America for a month, contribute $5,000 to nephew’s college fund
Once you have identified what exactly your financial goals are, you are then equipped to create a budget and financial plan that will help you achieve your goals. See below of one of my personal financial goals which I established at the beginning of 2006:
Goal: Go to NZ in 2011 for the Rugby World Cup (which would be a vacation for at least 2 weeks).
Specific – the goal is specific in terms of what exactly I want to do.
Measurable – given current prices of airfare, tickets, food, accommodations et al, I have estimated that I would like to save $6,000 to be comfortable while there.
Attainable – since I created my goal last year, I think that I will be able to attain my goal of $6,000 in 5 years.
Reasonable – because I have time on my side, the amount I have to save regularly ($50/paycheck) is not unreasonable to me. ($6,000/5 = $1200/yr; $1200/24 paychecks = $50/paycheck). I've set it up so $50 is automatically transferred into an earmarked savings account at ING on the 15th and 30th of every month. (ING is a great tool for incremental savings - be sure to read the "Pay Yourself First!" section)
Timeframe – I have 5 years to complete my goal. $50 every two weeks, no problem.
So…what are your goals? Stay tuned for tips to help create a budget to achieve them!!