Setting Financial Goals

Goals. How should you set goals? What type of goals should you set? Should your goals be lofty or attainable? Wonderful questions.

By setting goals, you are putting parameters around decision making in your life. You are forcing yourself to limit emotional decisions and forego short term pleasure. This type of procedure will greatly benefit you in the future, not just financially.

Hopefully after reading this article you are better at setting/completing financial goals than you were at keeping your five-times-a-week-workout New Year’s resolution. Because everyone sucks at that one. And we don’t want to suck at financial goals.

But, before we continue, I’m just going to throw this out there right now. I stole borrowed  stole these goals from Pete The Planner. While I could have easily made these same goals up, he outlines goals well and I think it is important for everyone to hear this. So I’m doing my part in spreading the word.

Now back to goals.

There are three types of financial goals:

  1. Consumption Goals

These are goals where you spend the money once you obtain enough of it. For example, you save $1,000 for traveling and you spend it on your upcoming trip to Cancun. These type of goals don’t propel you towards financial independence or increase your net worth. But they aren’t bad goals. You are maximizing you ROL (return on life) instead of your ROI (return on investment), which is very important. These types of goals are also very beneficial when you have a big property tax payment at the end of the year and you sock away money each month so it becomes a manageable expense. However, out of the three goals, this type of goal shouldn’t be your priority.

  1. Debt Elimination Goals

These goals are pretty self-explanatory. You are trying to eliminate debt. Student loans, credit card debt, or a mortgage are a few examples.This could mean putting a little more each month to pay student loans off faster. Or adding a little extra payment each month towards the principal of your mortgage. This type of goal, while not growing assets, is increasing your net worth. So this type of goal propels you toward financial independence. I am a big fan of this goal because it allows you to become debt-free sooner rather than later.

  1. Accumulation Goals 

This type of goal is for saving your money for future retirement. You are accumulating assets for the long-term, while at the same time, building your net worth. As well, and obviously, this type of goal propels you towards financial independence. An example of this goal would be saving an additional $100 each month in order to increase your net worth. While you’re at it, just automate that $100 from your checking account and ‘pay yourself first’.


Now that we know the types of goals, we need to talk about how to set goals. I am on the side of getting W’s (wins) instead of L’s (losses). The only time I like L’s is when I hand them out to my friend John on the golf course. What I mean by getting W’s is to set short-term realistic goals that you can accomplish. Start by eliminating $25 a month in spending and put that amount towards a student loan. Make the end goal of paying off your student loan by a certain date, but set a short-term goal to reach each month. By getting wins early, you will then get excited, and set more goals. Then, before you know it, you’ll have reached your long-term goals.

So, to recap, win in the short-term so you can win in the long-term.

For example, ‘Short-Term Goal: I will save $5 this week that I would normally spend on my venti Unicorn Frappuccino and put it into my Roth IRA. Long-Term Goal: I will have $500 in my IRA by September 14th of this year’. You win the short-term goal, you get excited, you increase the difficulty of the short-term goal, and before you know it, you’ve hit the long-term goal. BOOM!

Lastly, your goals should be specific. You should make goals that have specific dollar amounts and specific end dates. This allows the goal to be tracked for success or failure (except we only want W’s).

In my opinion, I would start by making accumulation or debt elimination goals, as these types of goals increase your net worth and propel you towards financial independence sooner. That being said, I’m totally on board with making consumption goals. My wife and I make these all the time for future expenses and traveling. I’m totally on board with these because living the life you always dreamed of is very important. There is definitely a fine line between mixing the three types of goals. However, I would just start with the other two because they will prepare you for the future better.

Now, go get some W’s and hand the L’s out to the haters.


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