Setting Financial Goals

Specific and explicit financial goals work to guide your money decisions, and are so important that it’s usually the first question I ask a new or prospective clients when I begin working with them. However, most of the time I get a blank stare in response to the question. For example, if I ask people to tell me their goals for their retirement or other investment accounts, I’m often met with a casual shrug or a platitude like “make as much money as safely and quickly as I can”, but you can make a better plan if you follow these steps to in setting your financial goals.


Your goals should follow your priorities. Your priorities are guided by your ideal future. If you aren’t sure what your financial priorities are here are a few questions to ask yourself: 1) How will you address unexpected expenses? 2) Do you want to start a business? 3) Do you have any plans for large expenses in the near or distant future? 4) Will you be funding education for any children should you have them? 5) How much of your income are you going to be replacing in retirement? 6) What kind of lifestyle do you want to live in retirement?

Setting your goals

Once you have a good grasp on your priorities it’s time to start setting goals. Make sure your goals are specific. To do this make sure your goals answer these questions: What is the purpose of this goal? What is the scope of this goal? (e.g. how much money do you want to save, or how many hours do you want to spend) What is the timeline for this goal? (e.g. When do you want to have this goal accomplished?)

Specify and Write Them Out

The big takeaway here is that your financial goals need to be specific and they need to be written (or typed) out. Giving your brain a road map to achieving its goals will make them that much more achievable. Putting your goals out into the world will help to hold yourself accountable to them. It’s very easy to think of some nice goals and then either never choose to pursue them or forget about them. But if you set explicit and specific goals, your chances of success will be much higher.

Examples of specific financial goals
  • I want to be able to spend $5000/yr on travel by the time I’m 50. I want to do this because traveling is my passion and I am happiest when I am traveling. I will achieve this by setting aside $____ /yr for ____years and investing the money appropriately.
  • I want to pay off my credit cards. I want to pay off my credit cards because having a large amount of debt limits my financial flexibility and causes me great stress. I will do this by paying off the lowest balance first and working my way up to the highest balance. I will set aside the appropriate money from each paycheck this happen and would like to have my balance paid off in _______years.
  • I want to save a downpayment on a home or investment property in 5 years. I want to do this because home ownership (or rental income) has been a lifelong goal of mine and I want to finally have a place to call my own. I will do this by setting aside $____/yr and investing the money appropriately.
  • I want to have an emergency savings fund for unexpected expenses or shortfalls. I want to establish an emergency fund because I don’t want my life to be derailed by unexpected expenses. I will do this by cutting back on contributions to my workplace retirement plan for 6 months and putting the money into an appropriate savings account.
  • I want to establish a charitable foundation in my name. I want to do this because I have always been passionate about ___________charity and their cause. This will be a great way to leave a legacy behind. I will do this in____years by establishing the appropriate account and making the appropriate contributions.
  • I want to have enough dividend income to subsidize my child’s college education in 10 years. I want to be able to provide for my child’s education because education is the most import gift we can give our children. I will achieve this goal by setting aside $____/ yr and investing the money appropriately.
Tracking progress towards your goals

You have to track the progress you are making towards your goals. It is a necessary step to keep yourself honest and accountable. There are several ways you can do this depending on your goal. Here are two popular ways:

  1. Create a cash flow plan
    A cash flow plan will establish when and how many dollars are flowing into and out of your accounts. A good rule of thumb is to follow the 50/30/20 plan. I.e. 50% of cash covering your must-have’s (transportation, housing, insurance, food, clothing) 30% of cash covering things you would like to have (vacations, entertainment, eating out, the 7th pair of shoes), and 20% covering your savings and debts. Try to incorporate your goals into this cash flow plan. There are plenty of great software solutions available to help you track your cash flows but I’ve found that these tools make it “too easy” and you never get a full grasp on your finances. Try mapping out your cash flow plan by hand. Don’t resort to the software unless you absolutely have to.
  2. Set up automatic savings
    Automatic savings are great because you can literally set it and forget it. For example, if you have a goal to take a vacation to Hawaii in 1 year, setting up an auto savings account to save for that trip is a great way to make progress. But beware, if you set up auto savings into an account that is too easy to access, you may be tempted to spend that money. Another pitfall is getting a little too confident and setting aside too much, only to have to move that money back into your primary account to pay your bills (this is where a cash flow plan comes in handy).

Curious where you stand against other Americans? Check out where you stand on the Consumer Finance Protection Bureau’s financial well-being quiz.

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