Setting Financial Goals - Part 1
Guidelines for determining your goals

(This is Part 1 of a three part series. See also: Part 2 and Part 3. Or you may want to start at the very beginning of this thread.)

Imagine for a minute that the Ph.D process did not involve a "proposals" phase, nor did your advisor ask you to determine a plan. How long do you think it would take you to complete your Ph.D. Four years ? Six years ? Eight years ? In my case, I frankly dont know! Without clear pre-defined goals, it is very easy to stray away and whats worse, not even know that you are straying away!

Its the same with your finances. Unless you set up goals, it is difficult to achieve them. So the first order of business is to determine your financial goals. There is no cut and dried rule for setting your goals. The first time it might seem a little hard and daunting. Here is the approach that helped me. You only need to follow this series of steps once. From the next time on (hopefully annually?), you just tweak the intermediate steps to suit your changing needs or just change the last step. Hope this helps. Again, this is what worked for me. If you have some suggestions for alternate techniques, I would love to hear them.
Here goes -

Step 1: The dreams
Forget for a minute that we are discussing financial issues. If money was not an issue, what would you do with your life ? What is it that you would rather be doing five years down the line ? how about ten years ? or 25 years ?

Step 2: Long term goal
Now take a look at what it takes to make your dreams come true. Start from your farthest and possibly the toughest-to-achieve dream. Based on it, determine what your "long-term" goals are. The more specific you can be, the easier it will be to set your intermediate and short term goals. You can look at Part2 of this post where i try to determine my goals.

Step 3: Intermediate goals (optional)
Look at your intermediate dreams, if any, AND your long term goals. To get there, what is is that you need to do in the in shorter time frame, say 10 years ?

Step 4: Short term goals
Repeat the above process, but for a very short term. Depending on your circumstances, this could be anywhere from 1 - 5 years.

Step 5: Pay day decisions and everyday habits
What can you do now to make it all happen ? What do you need to do today, tomorrow, and on the day you receive your paycheck ? This is THE most critical step. By making small changes in your every day habits and planning out your paycheck, you set the ball rolling. By simply following step 5 for your day-to-day expenditure, you can make steps 1 through 4, happen quite by themselves. It really is that simple.

Step 6: The "statement"
Finally, make an executive summary of the above process. Try and quantify the above in one or two statements that are actionable, attainable, measureable, etc. etc. for the sake of accountability. Here are some templates.
In the week/month/year XYZ I will save XYZ dollars towards XYZ fund.
In the week/month/year XYZ I will reduce my debt by/to XYZ dollars.
In the week/month/year XYZ I will increase my networth by XYZ dollars.

P.S.: I did not come up with this list of steps all by myself (but, ofcourse). It was influenced heavily by this post (thanks, JD@getrichslowly) and in general, by a lot of the reading in this area.

If you want a "buddy" to walk with you through these steps you can continue to Part2 of this series, where I will try to set my goals. (I'm a first time goal-setter too, so any comments welcome :). Or you can directly proceed to Part3 of this series where I list some of the posts by other bloggers on this topic.

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1 Comment:

Anonymous said...

Article is very much informative