Thursday, December 21, 2006

How To Set Goals You Can Achieve

As I begin to think about setting New Year's resolutions (and as you may be doing the same thing), I'm thinking about something a very smart lady once told me that changed my entire mindset about setting and achieving goals. She told me not to focus on results, but on the process.

I'll try a little demonstration. Let's say, hypothetically, that I want to be prettier in 2007 than I was in 2006 (hard to believe, I know!).

Here's the worst way to set the goal: In 2007, I will be prettier than I was in 2006.
Basically, this kind of goal-setting just sets you up for failure. It's vague, it reeks of wishful thinking, it's impossible to tell if I've achieved it, and it doesn't tell me what I can do to achieve it. Thumbs down.

Here's a better way to set the same goal: In 2007, I will have better skin.
This is an improvement because it's more specific than it was the first time around. It tells me where I'll be focusing my efforts. Nevertheless, it's still unworkably vague.

Here's the best way to set the same goal: In 2007, I will find a skin-care routine that works for me by researching my skin type and trying some well-reviewed products. I will drink 32 ounces of water every day and cut out one caffeinated beverage each day. I will see a dermatologist twice over the course of the year.

First, this last way of setting the goal places the focus on your behavior. I don't control my hormones, just like I don't control the stock market. But I can control my behavior. I decide if I drink Diet Coke or water, and I decide how much I contribute to my investment accounts from each paycheck. Second, it changes the criterion for judging success. If, one year from now, my skin hasn't improved that much but I've done all the things I've said I'd do to improve it, I've still succeeded. Similarly, if the stock market has underperformed, I may not meet my goal if the goal is "reach balance of $20,000 in IRA," but I've still reached it if the goal is "contribute to IRA from every paycheck."

Set goals with reasonable expectations. Am I setting the goal of maxing out my 401(k) for 2007? Not a chance. The maximum contribution of $15,000 is an enormous 50% of my gross income. Instead, I'm setting a goal to 1) Sign up, and 2) Contribute enough to earn the full company match. I'm not even setting the goal of maxing out my Roth for the year, and that's only ("only") $4,000. Instead, my goals for my IRA are 1) to open the account, and 2) to automate contributions from every paycheck.

With money goals, there are two easy ways to make your goals achievable:
1) Work with percentages, instead of absolute numbers. Instead of "I'm going to put $10,000 in my 401(k) this year," try, "I'm going to increase my contribution from 6% to 10%." This builds in the requirement that you pay attention to how much you can really afford to give, and it lets your contribution grow with your income.
2) Work in smaller time increments. Instead of "I'm going to save $5,000 for a house this year," try, "I'm going to put away $100 every week towards a down payment." Every week you get to meet your goal (especially if you automate the transfer!), and if you miss a week, you can be back on the horse the next week, succeeding again. This can help to circumvent the "all or nothing" mentality, where you slip up on a goal and then decide to chuck the whole thing entirely (I do this a fair amount myself).

Both of these techniques remind you that your goals are something you work for every day. It's the difference between cramming for a test (trying to save $5,000 in your last 4 paychecks to meet a goal for the year) and studying one hour every day (saving regularly from each paycheck over the course of the year), and especially with the help of automation, it's a great way to set goals you can achieve and achieve the goals you set.


ISPF said...

[...]Another well-written blog that I like is An English Major's Money. I think I am fascinated by the fact that a young English Major blogs about money related topics. Until very recently, money-stuff for me was synonymous to dry, drab and boring. Wouldn’t an English major want to blog about something romantic, poetic and lyrical? Well, not this one :) [...]

Anonymous said...

Hey, thanks for commenting over at A Pile of Coins. There don't seem to be too many German PF Blogs around, and not that many readers as well, so I'm glad to have at least some readers from the States ;-)

I'm quite new to blogging and maybe you can give me a little hand with getting into it while I'll help improving your German?

Merry Christmas and my best wishes for your new year's goals!

Anonymous said...

Those are fabulous tips on how goal setting, the more specific the better.

You're right - things like "i want to lose 10 pounds in 2007" aren't really goals. Setting up a detailed routine like exercising 15 minutes a day is more feasible.

Happy holidays!