Financial Goals: Three Steps That Matter

Last Updated Jan 25, 2011 3:06 PM EST

Most folks who are serious about making progress on their finances need to be serious about setting financial goals. But a lot of folks set great financial goals but fail to accomplish them. One reason is that without a plan to track progress, it's easy to get discouraged when you don't see immediate results.

Whatever your financial goals, if you want to be successful in reaching them, then consider these three simple but important steps.

Make a Written Plan: The saying "plan your work and work your plan" certainly applies to your finances. Any goal that's not written down is not likely to be achieved. The key to attaining your goals is to keep them realistic and write down a specific plan of action. For each goal, write a summary of WHAT you want to do, WHY you want to do it and when and HOW you will get it done.

When you make a written plan, think about the most effective way to accomplish your goal.

For example, the key to paying off your debts in the shortest time is to know which debt costs you the most. Make a list of your debts and sort it from highest to lowest annual interest rate. The debt with the highest interest rate should be paid off first. It is typically best to use any savings you have to pay down this debt first. Why? Typically your savings is earning less interest than the interest charged by the creditor. After the debt is paid off, you can use the cash flow that was used towards the debt payments to build up your savings again.

Also create a plan that allows for several ways to accomplish your goals. For example, the money to pay off debt can come from increasing your income, reducing expenses, selling some stuff, or a combination of all three.

Finally, the key to a good plan is to Keep It Short & Specific (the KISS principle). Here is an example:

  • Goal: Pay down $5,000 of credit card debt.
  • Why: Getting rid of these monthly payments will enable me to increase my cash flow and build my savings.
  • When: I will pay off this debt in 12 months.
Here is an example of the Action Steps:
  • Stop making any new charges on credit cards.
  • Use some cash in savings to pay towards this debt now ($2000).
  • Use savings from raising deductibles on auto insurance ($150).
  • Use tax refund in April ($1,200) to pay off this debt.
  • Pay an additional $135 per month to pay towards this debt. To come up with this extra cash, reduce expenses by car pooling, bringing lunch to work, eating out less and buying less music online.
Prioritize Goals: Set out to first accomplish the goals that will provide the most financial benefit and free up resources that can be used to accomplish your other goals. For example, use extra cash savings and income to pay down credit card debt. When the credit card debt is paid off, use the money from credit card payments towards paying down student loan debt, building up an emergency fund or saving for a car or a down payment on a house.

Break Down Goals into Action Steps: Create action steps for each goal, with each step being something that can be accomplished quickly. For example, if you want to get your estate plan in order, the first step is to review and update the beneficiary designations on your retirement accounts and life insurance policies. The next step would be to outline to whom you want your assets distributed and who would be your representatives, executor and guardians in your will. Finally, select and meet with a competent lawyer to help prepare and finalize the documents you need.

The message is to make continuous progress on the steps towards your goals and to seek professional help to keep you from getting bogged down.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.