Understanding the Need for Specific, Measurable Goals
For many years, I stopped making New Year’s resolutions. I never kept them. By the time February rolled around, I had already forgotten about them, leaving them as mere good wishes. However, I realized that what I truly needed were specific, measurable, relevant (aligned with my values), achievable goals with a defined timeframe. I also needed a concrete action plan for each goal.
Example in Financial Context
Many people know they should save more and make it a resolution. But what specific purpose? How much per month or bi-weekly? Can I realistically save that amount, or should I start with less? How will I do it? How long will it take to reach that goal?
Saving just for the sake of saving doesn’t make sense. You need a concrete goal. For instance, “I want to have 150,000 pesos in my emergency fund and aim to achieve this in two years.” Alternatively, “In three years, I want to buy an apartment and need at least 400,000 pesos for the down payment.” Don’t forget the long-term goal: “In 30 years, I want to retire and have accumulated 10 million pesos (present value, adjusted annually for inflation) to maintain a lifestyle similar to what I have today.”
Creating a Plan: Tracing Your Financial Path
Once you have a clear, concrete, measurable goal with a defined timeline, you can create a plan. For example, if you currently have 80,000 pesos saved for emergencies and your goal is 150,000 pesos in two years, you’ll need to save 3,000 pesos monthly to achieve it.
A plan is simply outlining a route from your current situation to where you want to be.
Personal Financial Planning: Understanding Your Current Situation
Interestingly, many people don’t know where they stand financially today, haven’t determined their priorities, or established concrete goals. Personal financial planning is a process that helps you understand your current financial situation, determine your goals and objectives, prioritize, and develop a strategy to reach what you want.
The path varies for each person. Some have debts or financial commitments hindering their ability to save. Their focus should be on getting out of debt first before planning other things.
Others manage their money disorderly and, despite having no debts, can’t save. They spend whatever they earn without a second thought. In this case, the priority should be creating a spending plan to regain control of their money. It’s an iterative and evolving process that takes time to master.
Long-term Vision: Building Financial Freedom
Keep in mind the greater vision: building a wealth that provides financial freedom by retirement age (typically 65) or even earlier. Eventually, we’ll all reach a point where we can no longer work and will need to live off what we’ve accumulated throughout our lives, including retirement funds that could translate into a pension.
A plan outlines a suitable path for you, giving direction. Without it, it’s easy to lose your way.
Avoiding Major Mistakes with a Plan
A plan can also help avoid significant mistakes, like falling into a debt spiral or indefinitely postponing retirement savings.
For example, a friend once considered hiring a credit repair service because he was deeply in debt despite his high income. After discussing his situation, I advised against it and suggested creating a plan instead. Within two years, he managed to overcome his financial challenges through sacrifices and hard work. It was worth it, and he learned valuable lessons.
Key Questions and Answers
- What are specific, measurable goals? Goals should be clear, attainable within a defined timeframe, and aligned with your values. For example, saving 150,000 pesos for emergencies in two years.
- Why is a plan important? A plan provides direction, helps avoid major mistakes like excessive debt or delayed retirement savings, and outlines a personalized strategy to reach your financial objectives.
- How do I start with personal financial planning? Begin by understanding your current financial situation, setting relevant goals, and prioritizing actions. Seek help if needed, as it’s an iterative process that requires time and effort.
