Thursday, August 30, 2007

Are your goals really goals?

I found a great post at The World Of Wealth about the difference between projecting your progress and setting actual goals.

Take, for example, my goal of having $1,000 in my Emergency Fund by December 31. I came up with that "goal" by figuring that my bi-weekly $100 contributions to the account would total $1,000 by the end of October. I know that, barring any major changes, I will hit this target well before the end of the year. This is very different from my long-term debt reduction goal, where I have set a target of April 30, 2009 to pay off my credit card debt. I set this goal without first consulting the current rate of my debt paydown. This is actually a goal that I will likely need to make substantial changes to achieve.

This is an important distinction to make. Ideally, the process for setting goals should probably lie somewhere between these two extremes. No one wants to set themselves up for failure, so it's important that the goal be realistic. However, if it's already an all-but-foregone conclusion that the goal will be met, then it doesn't really leave anything to strive for. An effective set of goals should represent a "stretch", while still being achievable.

This is a hard balance to find. How much of a stretch is too much? How close do you need to be to your goal to stay motivated? The answer will differ widely from person to person, and also from goal to goal.

What do you think? How do you go about setting your own goals (financial or otherwise)?


paidtwice said...

I haven't read the original post you reference (yet) but even when it is "projecting your progress" it is still a goal.

You don't know what tomorrow will bring. You can't count on having tomorrow what you have today, or that something major won't sidetrack progress between now and the goal date. And if something does happen, you may have to redouble those effort to hit what you once thought was just a progress-tracker.

I do track my progress, and then I up it a bit to set a goal, but not TOO much. because in the scheme of things, a LOT could happen in the next three years to change how my debt reduction will go.

So it is a goal, even if if all goes well, it is progress tracking. Because I can't guarantee all will go right ;)

MEG said...

Great post--and thanks for visiting my blog! You articulated this issue more clearly than I did. And it's got me thinking again. I STILL think in terms of projections.

But I think that's just how people do things who A) have a budget and save as much as they can already, and/or B) don't have any pressing goals that need to be reached within a specified amount of time.

I could technically save more by cutting costs like cable and refusing to eat out, but I'm not going to do that because my financial goals are long term and/or not mandatory (like buying rental property and having oodles of $ in retirement). So unless I suddenly have a pressing goal--in which case I'll slash expenses and/or increase my income--then I'll just keep saving my predetermined amount and project my way to financial freedom.

Loonies And Sense said...

Well put. The trick is trying to find the "middle ground"; you don't want to set the bar so low that you're guaranteed success, but you also don't want to set unattainable goals.

four.pillars said...

I tend to go with the flow. I'll set pretty achievable goals and will deal with setbacks if they happen.


SavingDiva said...

When I set my goals, I think about what I want to accomplish and when I want it done...then I go back and crunch the numbers to see if it is do-able. Sometimes it isn't, so I will tweak it a little bit...but usually I just have to make some sacrifices.