Are you ready to give up aimless wandering towards uncertain financial ends, but frustrated with the endless cycle of setting financial goals that you constantly seem to abandon? You’re not alone. Recent research suggests that for many, our societal obsession with goal setting and goal achievement is leaving most of us feeling disappointed, frustrated, and unmotivated to continue working towards the life we want. However, there are some things we can do as we set savings targets that can significantly increase the likelihood of reaching our financial goals.

Targets vs. Goals

Before we get too far into this post, I want to distinguish between the goals we discussed in the previous post, and what I generally like to call savings “targets.” These targets aren’t goals, they’re a part of a plan we’re using to accomplish our goals. For example, saving an extra $500 a month is not a goal unto itself; it’s a target that’s part of a strategic plan to be able to afford an experience or possession at some point in the future. The goal might be retiring at 55, or buying a house in five years or taking a year off to stay at home with your new baby. That $500 a month is just a target you are using to help you achieve the goal.

Targets that Don’t Work for Us

It turns out that when it comes to our finances, we struggle to set effective targets for one of two major reasons:

• They don’t realistically set us up for success in achieving our goal, or
• They are way too difficult for us to reasonably achieve without sacrificing a lot of other things that we consider valuable. So, we quickly give up on them.

To illustrate, let’s say that I want to see the Grand Canyon, and I decide to get there by driving 30 minutes a day from my home in Olympia, in the direction of the Grand Canyon. I’m making a little progress every day, but this target of driving 30 minutes a day will probably not actually effectively help me reach my goal. After six days, I’ll still be in the state of Washington. At that point, I’ll likely feel like I’m getting nowhere towards accomplishing my goal, decide I can’t do it, and give up on it. I guess I wasn’t meant to see the Grand Canyon after all.

On the other hand, let’s say that after consulting Google Maps I determine the Grand Canyon is a 19 hour drive from my house. I decide I’ll drive to the Grand Canyon in one day, because a day has 24 hours in it. If all goes according to plan, I’ll have 5 hours to spare. I have a three-day weekend coming up, so I’ll drive down on Friday, spend a day at the Grand Canyon Saturday, and drive back on Sunday. Back to work on Monday. That works, right?

Those travel plans may sound absurd to anyone who has ever planned a trip. Yet we frequently do this with goals that involve money. Most people live in an endless cycle of setting and abandoning savings targets because we either feel like they are getting us nowhere, or they’re way too difficult to realistically achieve.  For example, saving $200 a month toward a down payment on a $300,000 home is likely to leave you extremely disappointed when, after five years of saving, you’ve only saved enough to make a 4% down payment. On the other hand, if you’ve done the math, and determined that an appropriate savings target is $1000 a month to get that house you want, but your take home pay is $2000 a month, you’re likely to find yourself quickly frustrated at your inability to meet your savings goal.

Setting Targets that Work For Us

What can we do to ensure that our targets don’t end up leaving us feeling hopeless and frustrated?

First, make sure targets are realistic in terms of 1) What is actually needed to achieve the goal, AND 2) What you can reasonably contribute toward the goal. In order to do this, I recommend keeping three things in mind as you develop savings targets to meet your financial goals.

1. Know what you’re aiming for. If my goal is to retire at 55, or buy a three bedroom house in five years, or put both of my kids through college, I need to know approximately how much money it will take to do that, and how long I have to accumulate that. If I don’t, I could keep diligently saving a little bit every month, only to realize in five years, I have nowhere near enough to put a down payment on that house I really want.
2. Know your limitations. If you realize you’ll need to save $3000 each month to be able to retire at 55, but your take home pay is $4000 a month, setting a savings goal that out of reach will almost certainly result in disappointment and quick failure. This is likely to leave you discouraged about saving at all. Even though the problem is the opposite of setting a target that’s too low, it leaves you with the same feeling–that accomplishing your goals is impossible, that you’ll never get there. Instead, if meeting your goal on your desired time frame isn’t within your earning and savings capacity, and you don’t have a clear plan for increasing that capacity, it may be time to re-evaluate the goal to make either the timeline or the cost more realistic.
3. Use ranges for both goals and targets. One way to navigate the “too hard” vs. “too easy” target is to incorporate target ranges, rather than specific numbers. Research has shown that setting a goal range is actually a more effective way to set and achieve goals and targets then having a single number in mind. The attainability of the low end of the target keeps us from getting discouraged, while the high end motivates us to keep working on our goal, even after we’ve met the lower threshold we’ve set for ourselves.

A range also provides for flexibility that a specific number does not. If instead of $500 a month, I set a goal to save $300-$700 a month, then in months where I have unexpected expenses come up, I can still aim to meet my low threshold and keep my momentum going so I’m not tempted to quit. And in months where my earnings may be higher than normal (from a bonus or a tax refund), I’ll be able to put more money towards the higher end of my target. In this way, I’m more likely to stay engaged in the goal, and the targets I’ve designed to get me there, regardless of the circumstances that change around it.

It often makes sense to “pair up” your target ranges with goal ranges. If you want to retire 20 to 25 years from now, then make the low and high end of your savings target correspond to that range. That way you stay motivated to keep working towards the high end of your goal, even after you’ve met the low end because it means you’ll get to retire earlier.

Financial goals have to work for us, both now and in the future. That’s why we started with flexible goals in the first place, and it’s also why incorporating realistic targets (preferably target ranges) is an important step on the path to getting what we want. I encourage you to sit down with each and every one of the flexible goals you’ve written down for your financial future. What will it cost to fund them? On what timeline is it reasonable for you to save that much? Will it require a change in your income producing capacity or spending habits? Now is a time when goals may start to sort and prioritize themselves in terms of both when you want to accomplish them, and which ones you want to fund first. Let that process happen. It will give you a clearer picture of what is really important to you when it comes to money.

Finally, don’t think that we’re done with this yet. Targets are the intermediate step between our goals and the systems that turn dreams into realities. Systems are the most important thing you can actually create and change in your life to not just plan for, but to achieve the life you want. So, stay tuned for that in our next episode of Planning for the Life You Want, where we explore how to create the systems that help us meet our targets and turn our goals into realities.

This is the second post in the series: Planning for the Life You Want