Starting 2023 with a plan

By Kathryn Main

Goal setting is one of the most important habits you can implement in your life if you want to progress and achieve the things that are important to you. Setting goals marks the beginning of financial planning and gives meaning and direction. Setting financial goals helps you focus on your finances and gives you something to work towards.

For many of us, resolutions are made as easily as they are broken. Why? Because a resolution is just a decision. To make real changes, you need more than a decision – you need a plan. The plan is the guide to put your decisions into action so that you can reach your goals. Learning how to set goals takes practice.

A financial goal might be getting out of debt, saving for a specific item you can’t afford right now like a new caravan for family holidays, saving for retirement or buying an income generating asset.

Why are goals important?

1. Help with focus and direction on a personal level
2. To help you reach financial freedom
3. Keep you moving forward and to ultimately reach your goal
4. To have something to work towards
5. To motivate you

Setting short-term, mid-term and long-term financial goals is an important step in securing your financial future. If you aren’t working toward anything specific, you’re likely to spend more than you should. You’ll then come up short when you need money for unexpected expenses, or when you want to retire. You might get stuck in a vicious cycle of debt and feel like you never have enough money to meet expenses, leaving you more vulnerable.

Short-term goals: (3 months or less)

Short-term goals can be easily achieved in a short space of time

E.G. Save R1 500 for a pair of new pair of sunglasses

Medium-term goals: (3 months to 2 years) 

Mid-term goals are priorities that can be accomplished within 3 months to 2 years

E.G. Saving R35 000 for a family holiday or paying off debt

Long-term goals: (More than 2 years to achieve)

Long-term financial goals are priorities that may take more than 2 years to accomplish. Most long-term goals require regular savings.

E.G. Saving for retirement, saving for your child’s university education

Setting short-term financial goals can give you the confidence boost and foundational knowledge you need to achieve larger goals that will take more time. These first steps are relatively easy to achieve.  Achieving small victories will drive you to achieve your medium and long-term goals. 

Step 1: Visualise your goals

What does your ideal life look like? Visualise where you’d like your money to take you and start jotting down some ideas. Does it include being debt-free? Perhaps there are countries you’d like to visit, sports events you would like to attend. You might see yourself buying a new boat or renovating your home. Your dream could be to send your kids to a different school.

Think big and small. Your goals do not have to be long-term or complicated to be worthwhile. In fact, it’s important to have a mix of goals. This is your life and your financial goals are yours.

Step 2: Get practical about your goals

      I.        Avoid goals that are unreachable 

As you review your list, you will notice that some goals are going to take more effort and time than others. Those goals that are the hardest to achieve are called “stretch goals.” Stretch goals can be great for changing behaviours or breaking out of negative patterns but having too many of them in your goal list can be demotivating. 

    II.        Avoid goals that are too general

Goals need to be specific and actionable. For example, if your goal is to be debt-free, specify exactly which debts you’re going to reduce this year and by how much. If your goal is to have savings, specify how much you’re going to save and how often, where you will save the money and how long it should take.

   III.        Avoid goals that are outside of your control

Avoid goals that rely on factors outside of your control (e.g. winning the lottery). Focus only on outcomes you can directly influence by your own actions. For example, if your goal is to find a higher paying job, focus on the behaviours required to get the job you desire. 

  IV.        Prioritise your goals in order of importance

Ask yourself: What goals can I start working towards immediately and what goals can wait? It would be nice to be able to achieve all your goals simultaneously, but life isn’t like that.  The reality is that you must target your goals in order of priority.

    V.        Break big goals into smaller, more manageable goals

Big goals are great, but smaller goals are easier to measure and keep on track — and you get to celebrate achieving milestones more often! For example, if your goal this year is to save R1 500 for a new fridge, break it into 12 monthly saving goals of R125 per month.

Step 3: Write down your S.M.A.R.T. goals

What is a SMART goal? A SMART goal is one that is specific, measurable, attainable, relevant and time bound. The idea behind a SMART goal is that it should capture the behaviours and actions that will lead to the outcome you desire.

• S = Specific (What do I want to accomplish? Why? When? Who with?)
• M = Measurable (What will the outcome look like when it’s complete? What are the milestones along the way?)
• A = Attainable (Is this goal achievable/affordable?)
• R = Relevant (Is this what I should be focusing on?)
• T = Time-bound (How long will it take? What is the timeframe and target date?)

Examples:

Goal: To have savings in the bank.

SMART goal: I am saving R500 from each paycheck for my emergency fund. By the end of this year, I will have R6 000 in my emergency fund account.

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Goal: To cut back my social spending after the New Year.

SMART goal: For January and February: I am taking my own lunch to work; budgeting R80 a week for going out which I will pay myself in cash every Friday; taking my credit card out of my wallet.

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Goal: To save R50 000 for an overseas holiday

SMART goal: I am saving R1 000 per salary into my ‘holiday’ sub account so that I have R50 000 for my Thailand trip in [month and date]: This year’s goal: R600 by April; R1 200 by July; R1 800 by October; R2 400 by Dec 31.

It is always better and easier to plan one’s journey after choosing the destination.

Kathryn Main is the Founder and CEO of Money Savvy. Email her at kathryn@moneysavvyhumans.co.za or visit www.moneysavvyhumans.co.za