Guide to Accomplishing Financial Goals

Jane wanted to save $5,000 to buy a new car. She wrote down her specific goal: "I want to save $5,000 for a new car. Oh, I need to make it measurable" she thought to herself. "I need to set aside $200 each month for the next 25 months to reach my $5,000 goal." As she thought about it more, she wondered if it was achievable. "Can I actually save $200 each month? I think so. I can cut back on eating out and I can pack my lunch for work. But how is my $5,000 goal helping me? Is it relevant to my life?" Jane knew that her old car was a bit unreliable and that she needed to start making plans to replace it. So yes, her goal was relevant to her life. She had already determined a time frame in which she was going to accomplish her goal (in 25 months), so she was all set, right? Not so fast!

Jane's story highlights a common pitfall when it comes to setting goals. While she followed a good process for setting a goal, she failed to consider the importance of habits. Even the best formulated goals are not going to go very far if you don't have the habits in place to accomplish them.

You may recognize Jane's process for setting a goal as the SMART framework. SMART is an acronym that can help you remember the important parts of setting a goal:

• Specific
• Measurable
• Achievable
• Relevant
• Time frame

The SMART framework is good, as are many other methods for setting goals, but the bigger issue that you should focus on is what you do after you have set a goal. Often times, people will set a goal and get stuck on what to do next. This is where habits come in.

Your ability to accomplish your goals is the result of your habits. In other words, small and simple habits performed consistently are what lead you to accomplish your goals.

Here are four principles to follow when working to establish a new habit:

Habits Need To Be Clear

You might feel like you lack motivation to work on your goals, but in reality you probably just lack clarity.

When establishing a new habit, a simple exercise to follow is to have a specific plan for when and where you are going to implement the habit. For each habit, fill out the following sentence:

I will perform this habit __________ on these days of the week __________ at this time __________ in this place __________.

Habits Need To Be Easy

The easier you can make the habit for yourself, the more likely it is that you will stick with it and eventually establish the habit. With this principle, you are simply trying to establish a habit, not master it. After you have established the habit, then you can work on refining and improving it little by little.

So ask yourself, "What is the easiest version of this habit that I can perform in two minutes or less?"

That might sound crazy. What can someone really accomplish in just a couple minutes each day? But the truth is that if you can simply establish a habit that you perform consistently, then you can make real changes in your life. Once a habit becomes second nature, then you can increase the amount of time and energy you put toward that new habit (or you can keep it at the same level). The key is showing up consistently. You can't improve a habit until you have established it first.

For example, no one likes reviewing spending plans (aka budgeting). But your spending plan is the key to your financial success because it gives you a plan to follow in order to reach your financial goals. Let's say you have a goal to review your spending plan regularly each week. Here are a couple of examples of the easiest, two-minute version of that goal that you could perform daily (or regularly, if daily isn't realistic):

• Review the progress of a financial goal each night.
• Record one transaction from your bank account into your spending plan each night.

Neither option is going to change your world very much immediately, but either of those options will go a long way toward helping you establish a habit.

Unfortunately, we tend to be very perfectionistic (i.e. all-or-nothing) about our habits. We tend to focus on doing things perfectly and optimizing things before we even begin. That perfectionistic attitude prevents us from establishing even a small habit and mastering the art of showing up. In order to make lasting changes, you first need to show up consistently.

Habits Need To Be Enjoyable

When implementing a new habit (or breaking an old one), find ways to make it enjoyable.

For example, eating out can get really expensive. That might be a good habit to break. The challenge, though, is trying to figure out how to make it enjoyable. If you simply stop going out to eat, then that isn't very fun. In addition, you still have to eat, so now you're not having fun and you also have more work to do to prepare your own meals.

One idea would be to take a few minutes on Sunday to find a free recipe online and print it out. When you go grocery shopping that week, make sure to pick up the ingredients for your Friday night date night meal. You can even have a theme for your night—Italian night, Mexican night, etc. In addition, you can play some background music to help create an ambiance that matches what you are making (e.g. traditional Italian music or mariachi music).

If you decide to track you spending on date nights, you will see how much you are saving. At that point, you might want to put that money toward another financial goal or reward yourself in some other way.

Habits Need To Be Rewarding

James Clear said, "Behaviors that are rewarded get repeated and behaviors that are punished get avoided. Even more so, behaviors that are immediately rewarded get repeated and behaviors that are immediately punished get avoided."

As best as possible, you should try to find ways for your good habits to be immediately rewarding and for your bad habits to have an immediately negative consequence. You can use very simply methods to accomplish this.

It can be very motivating for someone to see their progress. So if you can come up with a way to track each time that you performed a habit, that will help you stick with it. For example, something as simple as recording a checkmark on a calendar each day that you successfully review your spending plan. Another idea might be that each time you put money into a bank account for a new car, you can also put the same amount of Monopoly money into a jar labeled "New Car". This will make it both tangible and visual.

One of the challenges of building better habits is that a lot of the results are delayed. You show up and you perform a given habit, but you don't have any immediate feedback that shows you that the work you performed is going to pay off. To overcome this, you should come up with a simple method to track your habit that gives you immediate feedback about the progress you are making. This is even more effective when it can be repeated on a daily basis (as opposed to weekly, monthly, etc).

Here are a few important tips regarding habits that will help you approach your goals in a different way.

Focus On The Process, Not The Destination

After determining what your goals are, don't focus on the outcomes of your goals. Instead, spend your time developing better habits (i.e. refining and improving your habits). Identify the goals you want to achieve and then break those goals into simple habits that you can perform consistently each day (or at regular intervals).

Your Future Is More Important Than Your Past

Don't get caught up in past mistakes or struggles. Where you are going is more important than where you are (or where you have been). Take small actions to get 1% better each day.

You Are Only As Good As Your Worst Day

Instead of trying to establish habits that are based on how you feel on your best days (e.g. when your focus or energy levels may be high), try to establish habits that are based on how you feel on your worst days (e.g. when your focus or energy levels may be low). In other words, plan your days around what you are able to do consistently even when you are not at your best.

Consistency Beats Perfection

It's not about being perfect. It's about being consistent. When you slip up (and you will) don't let it derail your entire plan. Instead, get back on track as quickly as possible and continue with your habits. The best performers get off track too. The difference is that they are usually good at getting back on track quickly. In other words, they don't let a slip up turn into a slide or a missed day turn into a missed week.

Send Yourself The Right Messages

Who do you want to become? Are the messages you send yourself supportive of who you want to become? The messages you send yourself will either support or hinder your ability to change your behaviors and accomplish your goals. For example, instead of saying "I spend too much money," you might say "I am learning spending skills that work for me."

Put It On Autopilot

In the world of personal finance, there are many things that you can automate. Some examples include automatic bill pay, automatic savings deposits, and automatic investing.

Technology can be great for helping you to make behavior changes through automation. If the automation of a habit is done well enough, then you might not need to worry about those four principles of establishing a habit. For example, if money is already coming out of your paycheck each month and getting deposited into a retirement account, then the habit is already done for you.

The lesson here: Try to automate your financial goals whenever possible.

Now that we have talked about habits, it's your turn to come up with your own financial goals. The following list has some common financial goals to help you get started:

• Build an emergency fund.
• Pay off debt.
• Replacement car fund.
• Buy a home.
• Grow your family.
• Potential career changes.
• Plan a wedding.
• Go on vacation.
• Hobbies, activities and passions.
• Retirement.

What are the habits behind your goals? How can you use the principles above to help you establish the habits that will enable you to accomplish your goals?

We have only scratched the surface of the importance of habits and how they can help you accomplish your financial goals. There are some great books that provide a more comprehensive look at how habits work and how you can make them work for you.