Functional Goal Setting

The importance of setting goals

Some data suggests that setting challenging but achievable goals leads to 90% better performance. But why?

Goals provide direction and help us define what success looks like. They clarify what you want to achieve and help to guide everyday actions toward the desired outcomes. Goals can act as a motivator providing a sense of purpose and urgency. They make it easier to prioritize tasks and allocate time and energy efficiently and effectively.

Goals allow us to measure progress and provide the ability to demonstrate how far we’ve come. They force accountability, especially if written down or shared. And lastly they create a sense of accomplishment and give reason to celebrate our success.

Without goals, it’s can be easy to drift without any real sense of purpose. You may get where to your destination eventually but it will either by shear dumb luck or take way more time than it should have. It’s been proven that those who define their goals and write them down stand a better chance of achieving them. This is the reason as to why it’s foundational to functional finances.

What makes a good goal?

For some it can be difficult to set goals because it’s not clear what a good goal actually is. Frankly, I’m not about to re-invent my own goal setting technique when a very good one already exists. Many are well aware of SMART goals and it’s actually perfect framework for helping us establishing strong financial goals.

The main reason why most resolutions fail is because they are generally lacking one or many of the SMART criteria. Goals that simply state “Save Money”, “Exercise More” or “Make a million dollars” lack specificity, are not measurable or simple impossible for most. When setting goals make sure that all of the above criteria is satisfied.

Setting Financial Goals

The main objective of Financial xFit and Functional Finances is to improve overall financial fitness so how do we apply SMART goals to achieve that overall outcome. By setting yearly financial goals they are automatically time bounded and with the goals being focus around financial health we know they. will certainly be relevant. So we really just need to focus on making them specific, measurable and achievable.

Remember, the specifics will be very different for different people. You need to recognize where you are at on your financial fitness journey at set appropriate goals. When I started one of my goals was literally to have a net worth greater than zero. This will be true for many who are just starting out fresh out of school.

Once I’ve established my goals I also like to sit and think about specific actions I could take to improve my changes of hitting those goals. These won’t be the only action I take but they are known actions I could take. Often many people’s poorly defined goals are what I would consider really good actions. For example I wouldn’t consider “create a budget” as a very good goal. What are we measuring when we create a budget, the fact that we created one. That’s not super useful from a goals perspective especially if we don’t actually follow it. That being said creating a budget is an amazing action that could be taken to drive towards our more specific goals. I also like to assign a meaningful timeframe to the action. These actions can act as a todo list for the year and can be actively managed month over month.

Setting Fitness Goals

With fitness being both a passion to the point where I’ve included it as foundational to a healthy financial plan it’s important that we also take time to set fitness goals. As mentioned earlier, my ability to achieve my fitness goals has been significantly less successful than my my ability to hit my financial ones. This could be due to a number of factors. Firstly, improving your physical fitness is actually much much harder than improving your financial fitness. That should give some people hope. Secondly, I’m likely not being realistic enough on the the achievability of my fitness goals especially at my age. Lastly, if I’m being real with myself, I’m simply not putting in sufficient effort to achieve the goals I’m setting.

These are some examples of the types of goals I typically set for myself. Like financial goals, the specifics will be different for everyone. Maybe I’ll do better this year but that’s pretty unlikely.

Final words

The last think I will say about goals is that it can be really easy to get discouraged when you don’t achieve them. Some financial goals can sometimes be difficult as there are factors that are completely out of our control. For me personally 2022 was especially rough and very few of my goals were achieved. There were a number of contributing factors, stocks were down, interest rates were on the rise, housing prices were pretty flat. It was really important for me to adjust expectations and then apply that to setting my goals in 2023. It’s important to set a number of goals with a few being highly likely to achieve. Also, don’t be afraid to set at least one ambitious stretch goal. Sometimes these force us to get creative and push a bit harder to make them a reality.