Keeping track of your funds is easier when you have a definite objective (or set of goals) in mind. They could be short-term goals, such as saving for a family vacation, or long-term ones, such as accumulating a retirement nest egg.
No matter what your final goal is, it needs to be something you can reach. If it’s not, it could be discouraging. In this installment of “Financially Savvy Female,” we talk with Kimberlee Davis, founder of The Fiscal Feminist and managing director and partner at The Bahnsen Group, about how to set financial objectives and make progress towards them.
1. What is my current financial situation, and do I know the facts about how much I make, how much I spend, and how much debt I have?
To set the right goals, you should be willing to ask yourself hard questions about where you are now. Before women can set a financial goal, they need to look at their current financial situation and make sure they know and understand all the facts.
The simplest approach to getting this information is to create a budget and assess how much money comes in, how much is spent and on what, how much debt they have, and what their credit score is. Setting financial goals needs to take into account the person’s current situation so they know what to work toward.
2. Am I making financial goals that are realistic, clear, and attainable, and that I can reach step by step?
Set a series of goals that are realistic and can be reached within a certain amount of time. As you reach each goal, it will motivate and inspire you to move on to the next one.
3. Am I setting goals in a way that makes sense so I can build my financial foundation first and then move on to goals that increase my net worth?
For example, if a woman has credit card debt and no emergency fund, she should not set investing goals until she has paid off her debt and has a four- to six-month emergency fund to cover her expenditures in the event of unforeseen circumstances.
The first five goals should be: 1) making a budget; 2) paying off credit card debt; 3) maintaining a decent credit score; 4) saving for emergencies; and 5) having fun while doing it!
4. Am I clear on why I want to establish this goal? What effect does this goal have on my long-term financial health? Is increasing net worth and financial health a frivolous or serious goal?
For example, wanting to retire early might seem like a pipe dream, but do you really know what it means? Have you considered how long you might live and how much it will cost you to be retired for an extended period of time? What makes this so essential to you? Are you pursuing this objective out of fear, rationality, or wishful thinking?
5. Have I educated myself and done research on what I need to do to become financially resilient so that I can set intentional and meaningful goals that will lead me to financial awareness and control?
Objectives should be deliberate, specific, and reachable within a reasonable time range. If goals are too broad, such as “creating money,” they cannot be measured against a precise criterion. When a goal is too broad, there is too much wiggle room in determining whether it has been met.
Objectives should be seen as building blocks, with the accomplishment of one leading to the accomplishment of another that comes after the previous one. Examine your entire financial situation, prioritize each goal, and then assign a time range to each to get a sense of your long-term schedule.
For example, after you’ve organized your finances, paid off your credit card debt, and established an emergency fund, your next goal should be to max out your retirement plan, followed by opening an investment account or purchasing a home—but this must make logical sense and not put the cart before the horse. It is a collection of short-term goals that lead to a long-term goal.
What can someone do after they’ve chosen a goal to ensure they actually work towards it?
Make the goal as simple to obtain as possible by automating your actions. For example, if it’s a budgeting goal, use a budgeting tool that sends you reminders when you go over your budget.
If you want to save or invest money, schedule automatic deposits every month or quarter. When it comes to debt repayment, employ the debt avalanche or debt snowball approaches and automate all payments.
Have an accountability buddy who will hold you accountable to your goals. We may be more motivated to report positive news when we have to check in with someone and explain where we are in terms of reaching our goals.
How frequently should they check in on progress?
Establishing financial goals is a dynamic process that evolves with time, so check in with yourself at least every three months. Check in on a monthly or quarterly basis to see where you are, what you have accomplished, and where you have veered off track with short-term goals.
Check in every six months to see where you are with longer-term objectives that are the outcome of short-term building block goals. Maintaining control will keep you motivated and on track. If you wait too long, you will lose sight of your goal and become more relaxed in your approach.