12 Steps for Setting (And Achieving) Your Financial Goals

Guess what? We all want to set financial goals, whether we’ve said ours out loud or not.

It could be that you’re pining to have zero credit card debt, you’ve been invited to France but have no idea how you’d pay for the trip, or you have a long-term ambition to put your two-year-old through college someday.

Setting financial goals is one step toward creating your dream life.

In fact, the research has pretty much settled it: Setting goals improves your performance across every facet of life, whether you want to lose weight, be in better shape or save more money. But, for many people, success only happens if you set and pursue your goals the right way! (Why do you think so few people who make New Year’s resolutions fail to keep them?)

So we’re here to help you with not only setting financial goals but getting to the finish line. Read on for the steps that can help make your vision a reality.

1. List your financial goal(s)

(Don’t stress about making this step perfect—we’ll refine it later.) What are your top three today? Buying a home? Opening an investment account? Paying off your student loans? All three? O.K., now write your goals down. Why? Because research shows that people who write down their goals are more likely to achieve them.

2. Figure out what your motivation is

The motivation to achieve your goal should be intrinsic, not extrinsic. Extrinsic motivations are reasons that are given to you whether you like them or not, whereas intrinsic motivations are ones you have for yourself. For example, “I’m going to build up my emergency fund because that’s what everyone says I should do” is extrinsic. “I’m going to build up my emergency fund so that I can quit my job to become a freelancer” is intrinsic. “I need to pay off my credit card debt because my girlfriend is yelling at me” is extrinsic. “I’m going to pay off my credit card debt so I can pop the question knowing I’m financially secure” is intrinsic. Get the idea? Good, write it down.

3. “Stack” your goals

Many people save for more than one money goal at once. And that’s fine! We recommend you work on three main goals first, though. First, you should be on track with your retirement savings. Second, you should have an emergency fund that is growing, with an eye to having at least six months of income in there. Third, you should have all your credit card debt paid off.

Now, if you’re wondering how this advice for doing all this “boring” stuff jives with step number two, here’s a trick you can use: Stack your goals. By that, we mean making the “boring” goals the first step toward getting to the fun goals. For example: “Once I’ve paid off my credit card debt, I can start saving for a new car that actually runs.” Or, “When I have six months in emergency savings, then I’ll start saving for my own beautiful condo with hardwood floors.”

4. Make your goals specific, measurable and challenging

Huh, how do I do that, you wonder? Research has shown again and again that the best goals are clear, measurable and require you to rise to the challenge. In other words, “Get better with money” will do nothing for you, just like “lose weight” doesn’t seem to move the needle for most people.

But “Pay off my $9,000 in student loans by 2022” is great. You’ll know exactly when you’ll achieve your goal because it involves hard numbers and a specific time frame. Also, research shows you’re less likely to give up on a goal when you can see the finish line. And, like exercise, your goal should involve a challenge, or else it can be demotivating when you reach your target too easily and too fast.

One last thing: To truly be achievable, the goal needs to be possible. And, surprisingly, you should give yourself a little wiggle room. For example, a 2013 study showed that when consumers set a goal to lose “two to four” pounds instead of a hard “three pounds,” they were more likely to re-enroll in the weight loss program, despite both groups losing the same amount of weight. If you want to make financial health a long-term habit, you might consider setting goals that won’t mean utter failure if you’re off by a week or two, or by a hundred dollars.

Oh, be sure to write this part of your goal down too!

5. Break it down

O.K., you’ve got a specific goal in mind. Now, how are you going to get there? A good plan will be broken down into steps and take into account contingencies. If it’s getting on track for retirement, those steps might include calling up the human resources department to open your 401(k), using a retirement calculator to decide how much you should be saving each month, having pre-tax dollars sent there every paycheck, deciding how to invest that money, etc.

Also, visualize the process of trying to reach your goal, which research shows works better than just envisioning the goal. What will the day-to-day look like? For example, if you are trying to pay off your credit card debt, imagine yourself shaking your head no when the waitress asks if you would like a second round, locking your credit card in your safe box, and logging into the website for your credit card to pay off a couple hundred dollars of debt in a few weeks.

Also consider different trigger experiences, and what your alternate behavior will be. For example, “If I’m invited out for after-work drinks, I will only order one glass of wine.” “If I get a sale email from Banana Republic, I will unsubscribe and delete the email.”

You guessed it, write these steps down.

6. Evaluate your budget

Next, we’re going to bake your financial goals into your real money life.

You’ll want to evaluate your budget from two angles. The first is by multiplying your take-home pay by .2. Why? Because 20% is one good rule of thumb for how much money you should be devoting to your financial goals. Way more than that, and you’re going on the equivalent of a financial crash diet: You could be setting yourself up for failure. Way less than that, and you may be selling yourself short and not achieving as much as fast as you could. Write down that ideal amount of money you’ll devote to your goal.

Also, take a quick look to see where in your current budget you might free up money. If you look at your cash flow and see that, gee, you have $500 each month that you don’t know what to do with, well, good for you. But most people might have to make some decisions, like canceling cable, saying no to a couple invitations for dinner, or grocery shopping more mindfully. (Or all three.)

7. Run the numbers

You now have an idea of the steps you can take and about how much money you have available to devote to your goals. If you have multiple financial goals, remember to divvy up the money you have to spend between them.

The best ideas to to set a timeline for a goal and see how long it will take you to achieve it. For example, if you put away $200 a month, will you reach your savings goal by next year? You might find that you have to either reassess your goal in this step, or reassess how you’re spending your money—or both. But once you come to a specific plan that you like, write it down.

8. Automate it

Don’t rely on your unfailing willpower! Automate your progress. Consider setting up a transfer from your checking to your savings account for the amount you want to save, and have the transfer happen right after your paycheck arrives so that you barely see the money. Saving into your employer’s retirement plan is another way to make savings automatic, even before the funds hit your checking account. Of course, for both steps, you should transfer only what you can afford.

9. Buddy up

Research shows that doing all the above steps—coming up with a goal, writing it down and coming up with action commitments—is great. But sending those commitments to a friend (or working with a professional) can increase your odds of achieving that goal. So pick a supportive friend, tell him your financial goal, and check in once a week to share how you are doing.

10. Monitor your progress

Next you’ll want to decide how often you’ll evaluate your progress. We recommend you look at your goal everyday, or at least spend 1 hour per week reiterating it to yourself. But don’t be hard on yourself: Celebrate the fact that you have stopped running up your credit card debt and have committed to paying it down instead of getting down on yourself for not paying it off faster. And, if you mess up, go easy on yourself! Acknowledge the hiccup, make an “if, then” plan (like we talked about in step 5), and keep going.

If, after a few weeks, you realize your goal is unrealistic, it’s O.K. to re-evaluate your timeline and numbers. We’re not saying give up, but if you find that you were overly optimistic, keep calm, revise downward and carry on.

11. Celebrate

Once you’ve reached your goal, you can consider rewarding yourself for a job well done with a well-earned splurge. Treat yourself to something you like, invite friends out to celebrate with you, or reward yourself with a weekend away so you can really savor your accomplishment.

12. Repeat step 1 through 11

We know you have a new goal to go after: With one success under your belt, it’s easy to get in the habit of always working toward your next financial hurdle.

9 Reasons Why Millennials Should Live Abroad In Their 20’s

The 10 Greatest Movie Gentlemen, and What They Can Teach Us