Why goal setting is so important

It’s better to be at the bottom of the ladder you want to climb than at the top of the one you don’t
— Stephen Kellogg


Life goals are not sexy. Idea for a new blog J Money?

To try and convince someone who doesn’t set goals to set goals is a very difficult proposition. There are so many other seemingly more important things competing for our time. Why would I want to waste it sitting down writing goals?  The ironic thing is that good goal setting should save us time. By narrowing our focus to only what is truly important.  

If you are living without goals you may be thinking “I am doing fine”. “I don’t need to change anything”. All could be true – you probably are doing OK. But you know what is better than OK? Better than OK….



The importance of goals is not fully realised until we start setting goals and achieving them. Once we hit a goal, then we build excitement and start looking for another target to hit. Once the momentum starts to build, we are hitting more targets. It is really quite addictive and very rewarding, as we become a better version of ourselves.

The overwhelmingly majority of successful people are goal setters. This is no fluke. Maybe not the case for the Kardashians, but generally speaking.

Good goal setting will save us a tonne of money because our decisions will be more efficient. Only spending on things that we need and want. Only investing in things that match our risk levels and values. Any wastage will be heavily reduced. Goal setting can apply to many areas of personal finance. Goals to buy a house, goals to invest, goals to pay off loans, goals to reduce costs, goals to get a promotion and the list goes on.

Goal setting also simplifies our lives. By sitting down and asking ourselves what we want out of life and our finances, we realise there are only a few fundamental things that we value. We then go from wasting time on things that do not matter so much, to spending time on things that matter.



1/. It forces us to sit down and ask ourselves one simple, yet effective question: “What do I want?” Life can very easily get too busy that we forget to take the time for ourselves to ask this question.  It gives our life purpose

2/. It gives our life excitement. It is fun to chase a challenging target. Especially one that enriches our life.

3/. It forces us to achieve our wants in life. We can control our own future by steering in the right direction, as opposed to driving around aimlessly and recklessly with no lights on in the dark.

4/. Faster results. Small changes can turn hopes into a reality.

5/. Focusing on what’s important.  Without clear goals it is hard to focus on one thing. We will be juggling many things competing for our attention. Goal setting can help to let us know what to give the most attention.

6/. We focus on your own wants, needs and values. We begin living our own life, not that of someone else.



S.M.A.R.T goals

Many of you would have heard of the acronym SMART for setting goals.

S = Specific. Goals need to be specific. Too broad or not well-defined and we will lose interest.

M = Measurable. The goal should have a measure so that we know when it has been reached.

A = Attainable. Good goals shouldn’t be so challenging we will never get there, nor so easy it is not a challenge.

R = Responsible. Specify who is responsible

T =Time- based. The goal should have a date by which it needs to be achieved.

An example
Suppose Mary wants to retire early. She is tired of her job and wants to retire by age 50. Her current age is 35; her income is $100K per year. Her current savings are $100K and she has calculated she needs $800K to retire early. Her goal should be stated as such:

“To retire by age 50 with savings of $800,000 by investing $20,000 per year in medium risk investment vehicles

— Mary

This is a good goal because it has specific and measurable numbers ($20K per year and $800K target) with a clearly defined end date (age 50). Mary has calculated she needs $20,000 saved per annum over a 15-year period compounding at 7% return to reach $800,000, which is realistic given her income. One would first need to look at her budget before determining this though. Only Mary is responsible for achieving this goal.

A poorly set goal would be: “To retire in 15 years”. It is not at all specific or measurable.

Early retirement is obviously something that Mary wants out of life as it aligns with her values. That is why she has set the goal. By setting the SMART goal she has increased her likelihood of achieving her goal and making her much happier with her life.

Note: this is a simplified example of life, as Mary has no partner or kids. Once we have other people in our life, they should be a major part of our goal setting and also share our vision.

In Mary’s example, 15 years is a long time to stay motivated. This is what is called a long-term goal. Too long a term and it can be difficult to maintain progress. That is why for any long-term goals it is important to have associated short and medium term goals. Mini-goals if you will.

For her goal of reaching $800,000 in the year 2033, she could also have a short-term goal of reaching $200K by 2022 and a medium term goal of $400K by 2025 for example. These dates are much closer to the present making it easier to chase that dangling carrot. Without the short and medium goals Mary would have a hard time determining if she was on target or not.  The timeframes can be made as short or long as we find effective. Feel free to play around with the timeframes to what works best for you and your motivation levels. Look for wins wherever you can to keep the motivation humming along. Soon enough and you will be on autopilot and things won’t seem like such a big effort.

Tip: If you are finding it difficult setting goals, once you hit a goal, reward yourself. Make it fun. Goal setting doesn’t have to be boring. Adding a reward that is tied in to the achievement of a goal can add extra incentive to achieving our targets.

Goals are ways of linking our wants, needs and values to our actions. Without goals we can act, but it will be without our wants, needs and values in mind.

Goals are not needed for everything we do in life but they are definitely useful for the large things in life that we value such as schooling, work, relationships, family and retirement. Values are very personal. What one person values will not be valued so much by someone else. That is why it is called personal finance. One person may value a promotion at work, whereas someone else could equally value a work/life balance.

Once we have clear, well-defined goals, we will find that decision-making also becomes easier. With so many things competing for our interest, we will choose to focus only on things that meet our goals, and not waste so much time on the other things. This frees up our mind and our time to do the things we really want in life that make us happy.

In Mary’s case, she may now value her budget much more. Before she verbalised her goal she may have been living paycheck to paycheck which contradicts her goal of financial freedom. But after setting the goal she will now focus on her budget goals and all areas of spending. Cutting down on expenses that don’t align with her values. She may value time with friends but not TV. In this case she should cancel her Sky subscription but keep hanging out with her friends.  She will then cut any other expenses that she doesn’t place great value on in order to reach her short-term target of investing $20K per year.  As you can see goal setting is a process that involves recognising and then prioritising our values to get the most out of our life. Not until we understand our priorities in life can we start making steps towards achieving them.



No one wants to work so hard and not get anywhere. Goal setting has two points: A start and an end, with an explanation of how to get there. This is what I mean by “blueprint”. A blueprint is basically all our goals rolled into one big master plan. Or another way of looking at goal setting is the drawing of the map. This should be the first step in any personal finance plan. If we don’t know where we are going how will we get there? More financial mistakes will be made than if we had a clear blueprint.

Money blueprints are very subjective as everyone will have different end points, different start points and different ways of travelling from A to B. That is fine. There is no one right way. Some will climb mountains, others will go through tunnels, some will ride bikes, and others will drive a Mercedes. The key is to have our own map that works and stick to it.

The map must suit our, not someone else’s path. There is no point having a map of Auckland when you are travelling in Wellington.

Setting goals that align with our values do take time as we dissect all aspects of our life that both enable and prevent us from reaching our goals. It requires a hard, honest look at ourself.  Once we have our goals and values identified, after a while we find that we will become a perpetual machine moving forward making decisions with ease. Almost automatically.

This is not a set and forget thing either. Often we will find ourselves slowing down too much or veering off the road. Notice these changes and make the modification to our behaviour to get back on course. We will come across political hurdles, economic curveballs, employment barricades and personal roadblocks and it will be difficult. We may even be forced off the course for a while. That can and does happen. As long as we don’t forget our goals we can always get back on course. The journey is not easy and requires commitment. The question is: how much do we want it?

If you don’t like the way you are going, change direction. Set new goals. Our priorities change as we age. We can’t expect to take a different path by continuing to make the same decisions.  The change must come from within us.

When we see achievements towards the things that matter, life doesn’t become so much of a daily grind. We will raise our self-confidence, as we recognize our own competence in achieving the goals that we've set. It helps us to organize our time and our resources, so that we can make the very most of our life. And enjoy the journey. Isn’t that what life should be all about?



The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here


Comment below. How often do you set goals? Does goal setting work for you?