Setting financial goals is fundamental part of achieving financial wellness. Many of us at some point have set some kind of goal, budget or tracking mechanism to achieve those goals. Either a simple Excel spreadsheet or a sophisticated software application. When it comes to goals pretty much anything goes.
What many of us probably don't realize is that there is a psychological aspect to budgeting, just knowing our numbers is probably not enough to keep us on track. That’s actually when the hard work begins, and mainly because achieving financial goals and sticking to a budget requires great amounts of "critical reasoning" and "creative decision-making". Basically, budgeting requires inventiveness, resourcefulness and creativity.
So let’s discuss why setting financial goals is a mix of science and art.
Goals are science because they:
Direct attention toward goal-relevant activities and away from non relevant activities.
Goals affect intensity of effort.
- Goals affect persistence.
Goals are art because they:
- Affect performance indirectly by motivating people to discover and develop new strategies for accomplishing the task.
- Require creative thinking and complex problem-solving in order to figure out how to accomplish a seemingly impossible goal.
How to tackle the complexity of setting and most importantly achieving financial goals without losing our minds:
- Follow the START process.
- Set Priorities - What’s your most immediate personal finance challenge?
- Set Targets - Be Specific and realistic, the more achievable your goals are, the more likely you will be to achieve them.
- Automate - Use the power of technology to automate processes that on your own would take a lot of “cognitive” work.
- Reduce Spending - Find ways and tools to save and stay on track (financial and behavioral).
- Track your progress - A goal is not effective if individual doesn’t track performance.
- Come up with a with to reduce your spending.
- Don't forget to come up with a behavioral plan. How are you going to get through the difficult situations when you are tired, demotivated or frustrated? Or how are you going to deal with situations when all you want to do is spend? Being aware that budgeting is a mental game is crucial to your success.
For Specific Ideas on how to set up the right budget and stick to it in relation to your spending Head to MoneyComb Now.