Week 3 February 2019 - Budget like a boss
Now that you’ve put a draft budget in place, we’re turning our attention to a strategy that can help you stick to it: goal setting.
The secret to following a budget is to create new money habits, and that takes time. We also need a reason to stay on track, and that’s where goal setting comes in.
We know from research that setting goals is linked to higher levels of success, self-confidence, motivation, and autonomy. A 2015 study by psychologist Gail Matthews showed when people wrote down their goals, they were 33% more successful in achieving them than those who formulated outcomes in their heads. We’re much more likely to achieve our goals (and stick to our budgets) if we’re focused on them.
The key messages around the goal setting process are:
make it clear and defined
write it down
break your goal into achievable steps
create and implement a detailed action plan to achieve your goal
track your progress regularly.
It can be useful to categories goals into immediate (ones we want to achieve in less than a year), short-term (one to three years), medium-term (three to five years) and long-term (five years or longer).
Goal setting can be a bit like learning any new skill - the more you practice, the easier it gets. If you’re new to the goal setting process, it can be good to focus on immediate and short-term goals so that you gain an understanding of what works for you, what doesn’t work, and to feel the sense of satisfaction that comes from achieving what you’ve set out to do.
When it comes to financial goals, it’s important to set an amount and work out how that fits in with your budget.
For example, let’s say that you want to go on holidays in one year, and you work out that you need $1,000 to pay for it. If you’re being paid weekly, you’ll need to set aside around $20 a week to achieve your goal.
You then need to think about whether you have financial capacity in your budget to save that amount.
If you don’t have enough surplus in your current budget, think about whether you can:
earn more money
cut back on other expenses
reduce the amount needed for your goal
extend your time frame for achieving your goal.
As well as setting out the detail for your goal, think about how you will track your progress. Will you use a chart or some other tool? Will you set up a separate account to save into? How often will you check your progress? For shorter term goals you may want to check more often than longer term goals.
Your task this week is to choose a personal or financial goal, and use the SMART or MOTIVATES ME process to think though all of the different aspects you need to achieve it, and then create an action plan to get started.