Something I’ve struggled with over the last few years is setting goals that are realistic, but also aggressive. To me, part of the point of setting goals is to motivate me to strive further. I should probably be trying to use the SMART (Specific, Measurable, Attainable, Relevant, and Time-bound) system instead of just setting goals.
First, let’s recap my 2011 goals:
Save as much as possible:
- Max out my Roth IRA – done in early April.
- Max out my Roth 401(k).
- Bump my emergency fund up by $4,000.
- Save $3,000 towards a car replacement in 10 years.
- Save $20,000 towards a down payment on a house.
Have excellent credit:
- Have a credit limit of $1,000 on my Amazon.com Rewards Visa card.
- Raise the limit on my primary card.
Reduce financial anxiety:
- Have only one checking account that I actually use – done in early April.
- Don’t check my bank accounts daily. (I’ve never overdrawn, so this is a safe goal.)
- In May, only enter my receipts into my spreadsheet twice – once on the 15th and once on the 1st of June.
- Only check my Vanguard account on the 2nd business day of the month (when the previous month’s dividends post in my 401(k) account).
- Make no more trades until January (except to convert the traditional IRA back to a Roth IRA).
And one final, golden goal:
Achieve a net worth of $100,000.
What was good about these goals? They were all time-bound (by the end of the year). They were all specific and measurable. They were all relevant. And they were all attainable, except for maybe the “Have excellent credit” ones since those were really out of my control.
I’m going to throw out there that the ‘A’ in SMART should stand for both “Aggressive” *and* “Attainable”. They should be reach goals.
I’m also going to argue that net worth goals that are time-bound are bad. They are specific, measurable, relevant, and time-bound, but if you have a lot of money in the stock market, reaching them can be out of your control. That’s why for 2012, I didn’t set a net worth goal. What I’ve started doing instead is a) celebrating net worth milestones, like $150k and tracking how far I am until the next one and estimating how long it will take, but NOT setting a goal on it. Last year, I kept coming slightly short of hitting $100k, which drove me nuts. That’s not in my control, so I shouldn’t be worrying about it.
I do, however, really like this concept of a golden goal. It’s the biggest goal and the one I’m striving for the most. Last year, it was achieving a net worth of $100,000. This year, it is preparing my finances to buy a condo so that when I’m emotionally ready again, I can go for it. All of the reasons why I wanted to buy a place last fall are still there. All of the reasons why I picked a condo over a house are still there. I still want a 2 bedroom/2 bathroom place. So all I really need to wait for is being emotionally ready to give it a go again.
I, obviously, want to hit a $200k net worth at some point, but I really don’t think that’s a realistic goal for this year. (Okay, well, I just guessed some numbers for my annual bonus, raise, and my company’s stock price that make it *possible*, but I’m not really going to count on it because those numbers are completely random guesses that could be higher than reality.)
Let’s re-evaluate my 2012 goals against this new criteria:
The golden goal:
- Find a condo that I want to buy, present a good offer, reach mutual acceptance, go through closing, and move in.
Save as much as possible:
- Max out my traditional 401(k) – $17,000.
- Max out my Roth IRA – $5,000.
- Invest 20% of my gross income, investing beyond the traditional 401(k) and Roth IRA in my taxable investment account.
- Save $3,000 towards a car replacement in 9 years by automatic transfer of $250 each month.
Re-pay the various savings buckets that I borrowed from in December of 2011 to help fund my down payment: taxable investments and car replacement fund.(done in February after closing didn’t happen – total ~$8,400)
Re-arrange money to get emergency reserves up to 6 months expenses at a rate of $3,600 in expenses per month.(done in February after closing didn’t happen)
- Put any leftover savings amounts after paying myself back into my down payment savings account for my future condo purchase, including
earnest money deposit returns,income tax refunds, and apartment security deposit returns.
Have excellent credit:
- Make zero requests to change the limits on my credit cards throughout all of 2012 – let the credit card companies come to me.
Keep financial anxiety to a minimum:
- Maintain my system of: a) nearby credit union for checking, deductible reserves and 2 months of emergency reserves, vacation savings, and other small and/or short-term goal savings, b) Ally for larger, more long-term savings amounts (e.g. car replacement, down payment funds, and the rest of my emergency reserves).
- Only check my checking account once per week, to ensure that there were no fishy transactions.
- Only check my Vanguard account on the 2nd business day of the month (when the previous month’s dividends post in my 401(k) account). Wait until they post to write my monthly summary.
- In January, create an investment plan for the year and stick to it.
Which ones are specific? All of them. Which ones are measurable? All of them. Which ones are attainable? All of them. Aggressive? #8 isn’t super aggressive, but it does centralize back to the golden goal for the year. They are all time-bound since the timeframe is by the end of 2012. And they are all relevant to my current life plan.
#8 isn’t super specific either, so I’m going to add #8b:
Snowball all monthly savings (after 20% to investments and $250 to car replacement) and net bonuses (after 20% to investments) to the down payment savings fund. The goal for this is about $1,000 per month, with bonuses to supplement this growth.
I’ve actually been pretty happy with my progress on the financial anxiety goals:
- I’ve been super happy with the nearby credit union I switched to partway through last year, as well as Ally for online savings, and Vanguard for investments. Having only three primary institutions and having them categorized like that is awesome. In my head, I know that all of the money at Ally is savings and that all of the money at Vanguard is investments. I have a one-stop shop for seeing my asset allocation and adjusting any contributions. (Have I mentioned how much I love that my 401(k) is with Vanguard yet?)
- I’ve been breaking goal #11 by checking my checking account for fishy transactions daily, but I’m not breaking the spirit of the rule because it doesn’t make me anxious to check it every day.
I actually haven’t really felt anxious about my finances in quite a while, which is an amazing feat. Sometimes I worry that I’m spending too much and that I should be saving more, but I think that at saving > 50% of my net pay, I’m doing pretty okay and I should just stop worrying about it, so long as I’m enjoying what I’m spending my money on.
Setting yearly goals over monthly goals has been working really well for me. I set the system up after I set the goals for the year and then it just goes along happily. As I’m checking in on my food habits for April, I will occasionally set monthly goals, but not very frequently. I’m just not sure what I would set monthly goals *for*.
Readers, how do you set goals? Monthly, yearly, weekly? How did you discover that system worked for you?