Three key behavioral concepts that can help you achieve your goals faster and more effectively are:
- Don’t create too distant goals – if a goal is too future-oriented, it’s not motivating and it’s harder to stick to. If it doesn’t feel real, it’s likely not a priority and you won’t take it seriously because you have so many other priorities in life. This is why so many people lack retirement savings (saving for a distant retirement seems pointless when you’re 25. Oh how wrong that is) and lack knowledge of personal finance even well into their 30s (eventually, I’ll figure that stuff out is what they tell themselves). This is why at Progress Wealth, we believe in breaking down long-term goals and making them short-term.
- Writing financial goals down and keeping them in a clearly visible place (like a sticky note on your bathroom mirror) engages a part of our brain called the Reticular Activating System (RAS). RAS gets activated by the simple act of putting our goals in pen and paper. Seeing our aims written in clear words before us, feeling the touch of the pen, or engaging in the thinking process of writing the targets trigger the RAS functions and ensure that we go for it. Writing our financial goals down and keeping them in a visible place makes us more aware of what we have to do right now to improve our personal finances. It may seem insignificant but the impact is SIZABLE (as much as a 23% increase in your likelihood of reaching your goals).
- To make SMARTER financial goals ensure that there’s something motivating in it for you, immediately. Too many people set logical goals but forget the importance of feeling good. Cecil Alec Mace was the first person to carry out empirical studies on goal-setting (Carson, Carson, & Heady, 1994). His work emphasized the importance of willingness to work and indicated that the right plans could be a sure shot predictor of professional success (Mace, 1935) leading us to understand that if we don’t find goals both ethical and immediately rewarding, they’re less motivating and harder to stick to.
Why are most people so ineffective at achieving their goals?
There are quite a few studies on the ability of Americans to reach their New Year’s Resolutions because of how awful we are at meeting them. Barely 9% of Americans feel like they successfully met all their resolutions for the year and these studies are seeking to answer “Why are we so bad at this?“
They’ve found the following:
- People make too many goals because they’re impatient
- People make unpleasant goals (i.e. losing weight)
- People set really difficult goals because they’re unrealistic
These studies have found if we break down success into easy, simple, baby steps that lead to achieving success in attaining a more difficult goal… it’s far more effective than just saying “I wanna be a multi-millionaire!”
For example, instead of saying I want to buy a 5 million dollar home in 10 years… I might instead set goals like:
- Limiting myself to buy only 1 thing off of amazon per month.
- Aiming to go out for coffee a maximum of 2 days per month.
- Try to find 3, free fun things to do for entertainment that I know my family and I would love
- Aiming to bring lunch on average 4 out of 5 days.
- Go out to eat a maximum of 5 days a month.
…and save all the extra cash I’d have as a result and invest it.
How should you set goals when you’re trying to change the way you live your life?
When you’re trying to stop being a HENRY and in doing so, become wealthy as fast as prudently possible, we believe that goal setting shouldn’t be a once-a-year exercise. If it is, we forget what goals we’re pursuing within 8 months and are far less likely to be successful.
We believe in setting financial goals semi-annually (or as often as monthly for the less-disciplined among us) and making the financial goals more immediately actionable.
As you set your financial goals, keep in mind that they should be Specific, Measurable, Actionable, and Related in some way to the achievement of your Long Term Financial Goals, Time-Bound, Ethical and Rewarding.
What do I mean? If you’re a HENRY and want to be worth 2 million dollars by 35 and are worth 100k today at 25 and can afford to save 100k a year, it’s possible but you’ll have to work hard, get a little lucky, and stay disciplined. You might want to buy a rental property, invest in a master’s degree or additional professional designations, find someone to split the bills with (spouse or roommate), etc. Your goals would have to be in line and could include any of the above.
How To Create Your Own Baby-Steps To Achieving Your Financial Goals Right Now
Step 1. List Out Your Goals
The simplest way to start is to list out 6 different financial goals you’d like to accomplish immediately. I always recommend my clients start with:
- 3 x short term (1-5 years from now)
- 2 x mid-term (5-10 years)
- 1 long-term
This is easier to manage and plan for, strategically and, thoughtfully.
Once you’ve created your list of goals, figure out on the high side how much each one will cost you. This might be a new car in 3 years (45k), a house in 5 years (20% down will be 100k), a trip to Europe ($5,000) in the short term, a kid in 7 years, and retirement at the age of 55 that will cost 100k per year.
Step 2. Do The Math
Once you’ve figured out your goals and how much they’ll cost, list them out in a spreadsheet and figure out how much you have to save each year in order to afford them. Figure out if it makes sense to invest your money or keep your funds in your bank account. If you aren’t sure how to invest, contact a fiduciary financial advisor like Progress Wealth Management for help.
If you intend to invest your savings, use the future value function in excel or google sheets included below.
Keep in mind that this article can’t tell you how to invest or how much to save for you to reach your financial goals because it depends on so many things like risk tolerance, the cost of your goals, and where you’re starting from.
Step 3. Analyze Your Risks
There are innumerable risks that can impact your ability to reach your goals. These might be:
- Investment risks – the stocks you choose could do worse than you expect.
- Insurable risks – are you properly insured? We don’t sell insurance but we still think it’s an affordable way to transfer risks out of your financial life.
- Estate Planning – if you died early, you may still want to ensure your spouse can retire, your kids go to college and your family isn’t ruined by your death.
- Behavioral Risks – We all have tough times in life. These tough times can make budgeting harder, using credit cards responsibly harder and life harder in general. Most people have a hard time being financially responsible during tough times in life.
- Employment Risk – A huge assumption most non-professionals make is that they’ll never be laid off or have trouble maintaining their earning power. Unfortunately, that’s not always true… especially if you’re a high-earner. It’s important to put pen to paper and have a plan for how you’ll manage this risk. This might be an above-average emergency account, a wide network of professionals, a side-hustle that could be a full-time job if need be, etc.
- Tax Risks – are you following all the applicable tax laws? If you’re not familiar with IRS code and how to interpret it, you might be missing out on valuable tax strategies that could make saving for retirement easier and your life more affordable (especially if you earn a healthy living).
These are all things that Progress Wealth Management is equipped to help with and more in a simple, easy-to-understand way. We charge 1% with a max fee of 12k per year, per household. If you think your time is better spent doing something else or if you think this all sounds very complicated, you should probably contact us. We’re still accepting new clients at this point.
To conclude, most people set goals and forget them shortly thereafter because they have no process to ensure their success. They get busy, lazy, and forget what they’re really aiming for and why. If you want success to happen, you can’t base your strategy on a hope and a dream. You have to use a well-thought-out and scientific approach by setting SMARTER goals and figuring out how to ensure that goal stays on your mind.