Get the low down on how goals help you set money aside for your future self.
➜ Why setting goals is important
➜ How to use the SMART framework to set good goals
➜ Ways to stay on track with your saving
It might sound simple, but setting clear goals is one of the best (and easiest) steps you can take in securing your financial future.
In fact, a recent study found that people who linked their emotions to the act of saving increased their savings by 73%.¹ So having financial goals not only gives you a clear plan to achieve them but can increase your motivation as well.
But how do you link your emotions to your savings? You could start by picturing yourself benefiting from what you’re saving for – to feel that peace of mind or sense of enjoyment.
If your goal is to save for a holiday, imagining yourself swimming in the ocean could motivate you to cut down on take away in favour of home cooking. Imagining the kind of home you want to own could help you to curb the nights out in favour of nights in in your rental while you save.
It helps to be clear on what you want to save for and to start saving while you are feeling excited about achieving your goal.
One method for setting goals is to use the SMART framework. This means your goals are:
Let’s take a look at how to use the SMART framework.
The more specific you are, the more likely you’ll be motivated to stick to your plan. Setting a goal to save for a holiday is a good start. But naming your goal, for example ‘Island holiday 2021’ makes everything feel a little more real and ultimately achievable.
If you’re able to, change the name of your savings account to reflect your goal. You may also be able to upload an image to reflect your goal as well.
Assuming your heart is really set on this island holiday, the next step is to set a target. Having as much money as possible for the trip would be fantastic, but it’s not really going to help you figure out how you’re tracking in reaching the goal.
So set an amount as a target. This will mean you’ll be able to monitor your progress and know whether or not you’re going to meet your goal.
It would be great to stay at a series of 5-star resorts for a full summer on an island. It’s also pretty unlikely. When setting goals you need to be realistic about:
If you’re not realistic, you may find you get disheartened pretty quickly. So, focus on what you can do and build up from there. Saving a little each month is better than saving nothing at all. You could even consider setting aside money each day from your Earnd pay.
The more important a goal is to you, the more likely you’ll stick to it. A holiday on an island may not be that appealing if you’re scared of flying or if you’re not a big fan of sea and sand. So make sure the goal you set is one that will keep you going over the long term.
You also want to consider how this goal aligns with the other things you’re wanting to do in your life. Does it all fit together? If so, that’s good news. If not, what could you change to make sure it does?
Some goals will naturally have a time you need to achieve them by – like going on holiday or buying a car. Others may not – like building an emergency fund. So if your goal doesn’t have an obvious end date, it can help to set one. The timing should be based on how much your overall goal is and also how much you’re able to regularly contribute.
Some people find putting photos of their goals in different places helpful to keep them front of mind. You could try:
Even if you miss a month or you have to dip into your savings, don’t stop. A small slip up can sometimes stop you achieving much bigger goals. If something goes wrong, figure out why it happened. Was it a one-off? Is your target saving amount unrealistic? Do you need to make any adjustments? The answers to those questions can help you update your plan.
Compound interest can help you reach your goals faster. See exactly how it works.