The 7 Steps to making Value-Based Financial Goals
There are many different approaches when it comes to managing your money. Some of us are over-savers; saving every dollar we can with no end in sight. Some of us are over-spenders; spending on today instead of saving for tomorrow. Ideally, there is a perfect medium that exists between the two extremes. A place not only where you are able to spend on yourself, but simultaneously on your long-term goals. Walking the line between the two can be difficult, but it starts with making clear financial goals based on your personal values.
Why do Value-Based Financial goals Matter?
Many people focus too much on saving itself. Often the goal is simply: to save. The question inevitably becomes: when is it enough? Money is meant to be spent and once you’ve done the work, happiness should follow. When we determine what’s actually important for us and makes us happy, we can tie that to a financial goal. This is why it is important to take the time to get clear about why you save, and what you plan to use those savings for. Once you have some value-based goals, you won’t only be more motivated to save, you will be much more intentional with your saving as well.
7 steps to make Value-Based Financial Goals
Step 1: Why is money important to you?
The first step to figuring out what to do with your money is to answer the question: Why is money important to you? You may find it pretty easy to answer this question at first. Security... Freedom... etc... But I encourage you to dig a little deeper. Try and be specific with your answers. Consider how, if money was no object, you would invest your time, skills, and energy.
“Money can provide educational opportunities for my family” or “money allows me the freedom to pursue my creative endeavors without financial worry” are examples of more specific answers.
You can have multiple answers to this question. The goal is that by answering it, you will reveal the values that you want to live your life by, and how money can help you do so.
Step 2: What goals need to be accomplished in order to live a life in line with your values?
You just thought a bit about the values you want to live your life by. Now ask yourself, what goals would you need to accomplish in order to do so? Allow yourself to ask What If, and really think about what it would take to get where you want to be.
If you value being able to provide opportunities for your family, it could be:
“I don’t want my kids to take on student loans like I did”
If you wanted to be able to pursue your creativity, it could be:
“I want to build an art studio in my home” or “save enough to take 2 years off work and focus on my art”
Write down the goals you come up with.
Step 3: What are some other goals that you know need to be addressed?
You’ve asked yourself what if, but now it’s time to ask yourself what do I need? Not every goal you have for yourself will be tied to a deeper purpose, some things just need to get done. Consider the next 5-10 years. What are some financial items you know you will have to check off the list? Maybe you know the family car will need replacing, maybe retirement is coming up and you feel off track. Write these down as well.
Step 4: What are some stretch goals you have?
Finally, allow yourself to write a couple stretch goals. These are goals that also align pretty closely with your values, but may not be a top priority, or may seem slightly out of reach. This could include yearly vacations with the family, moving to a better neighborhood, or even season tickets to your favorite sports team.
Step 5: Make some guesses about each goal
Now that you have a list of some value goals, some need goals, and some stretch goals it’s time to take some guesses. For each goal you have to guess:
When do I want this goal?
How much will it cost?
I emphasize guess because it is impossible to truly know for these things for sure. But don’t let this discourage you from guessing, it is better to be 90% right, than 0%.
Step 6: Rank Your Goals
Next you should rank your goals in order by both importance and urgency. Balancing both important and urgent goals will be one of the most difficult parts of your financial journey. Important but non-urgent goals like retirement or saving up for a house seem to always get pushed aside as more urgent matters like bills or repairs come up. You should get crystal clear about which goals are truly important for you so they don’t get left behind in the bustle of everyday life.
Step 7: Make your plan
You have guessed how much each goal will cost. You ranked them on importance and urgency, so you know which goals you will be working towards first, now you just have to find the money. Just like with your goals, it is important to be as specific as possible with your plan. “Saving $150 1st each month” or “increasing my 401(k) contribution” is much better than “I’ll save what’s leftover at the end of the month.”
3 Tips on making Value-Based financial goals
1. Let go of Perfectionism
Step 5 entails making some guesses for each goal. It can be easy to get discouraged by how unsure the future is, but you shouldn’t let that stop you from making your best guess and then moving on to making a plan. If you get stuck on step 5 trying to get every little detail exact, you will never get to step 7 where you actually start to accomplish the goals. If you find out your guess is wrong in 1,3, or 5 years, you can just update it and adjust the plan accordingly.
2. You Won’t Be Able to Do Them All
Step 6: Rank your goals is one of the most important steps because every goal you choose to pursue will be at the cost of another goal. Every dollar you put towards paying off the mortgage, is a dollar that could have been put towards a vacation. Every decision will involve tradeoffs. Instead of trying to avoid trade-offs, become very clear about what you value and what you want to accomplish, then commit to those decisions.
3. Make the plan automatic
Following the plan you make will be easy for the first month or two while you have fresh motivation, but eventually the motivation fades and your old habits start to creep back in. One way to avoid this is to make your plan automatic. Instead of needing the motivation to transfer the money out of your checking account each month, you can set up an automatic transfer to do it for you. It is much easier to stick to your savings plan when it is the default option! To learn more about setting up automation in your finances check out our blogpost on the topic here.
In Review…
If you followed along with the step-by-step process on your own piece of paper you should have:
Your answer to: Why is money important to you?
Some goals related to your values
Some goals related to your needs
Some stretch goals
All of your goals ranked by urgency and importance
A plan detailing where you will receive the money to accomplish the goals
Being crystal clear about your values, and making goals based on them will motivate you to save more, and be more intentional with your saving.
For more helpful content on personal finance check out our other blog posts here.