I detest setting goals. They have a negative implication because I always view them as a stark reminder of my financial inadequacy.
It was these words by Christine Benz that shook me out of my financial lethargy: “You know how it is when you don't start a day with a to-do list. You get buffeted around by whatever comes up: phone calls, answering emails, chatting with colleagues. Managing your finances without first articulating your near- and long-term goals is pretty similar. The days will go by, and you'll no doubt find plenty of ways to spend your money. But you won't necessarily get to where you really wanted to go.”
That’s when I realised that I was approaching it the wrong way. The problem was not with my goal, but how I was framing it.
All along I focused on what I would have to sacrifice to attain that big amount. That immediately put a mental and emotional roadblock in my path. I turned that around and began to think of what I passionately wanted to materialize in my life. Then the apparent sacrifice is not punitive, but a means to achieving what you dearly long for. All it required was readjusting the narrative in my mind.
My colleague in Italy, Sara Silano, came up with a brilliant suggestion. Why don’t I employ the SMART (Specific, Measurable, Attainable, Realistic, Time bound) goal strategy that organisations encourage their employees to have? Why don’t I apply it to my personal financial situation?
Here’s how I put this into action.
Specific
To get motivated, you need to be clear on what exactly you want your money to do for you.
Behavioural scientist Daniel Crosby explains why it helps to be richly pictorial and frame intentionally. “Food with a more descriptive label - Belgian Black Forest double chocolate cake - is perceived as more satisfying and delicious than just a chocolate cake.”
I put down my goal as saving for a holiday. But that was vague, after all I do take short breaks and a holiday now and then. Finally, I nailed it. The one thing that got me excited was going on a safari to Africa and doubling it up with a hot air balloon ride.
To make your goal attainable, make it vivid. It’s okay to start with ambiguous, but ensure you get specific.
Sarah Newcomb also recommends using visualization strategies when thinking about retirement as a goal. “When you think about what your life in retirement will look like, force detail into the picture. What will your home look like? How do you see your travel plans? What sort of social life do you envisage? This will provoke you into action.”
Measurable
You must have a clear idea of what success is.
For instance, I cannot randomly assume that my dream vacation will cost me Rs 4 lakh. I will have to do some homework as to what the various safari tour operators offer and how much the packages cost. In addition, I will also have to budget for airline ticket, visa cost, and overseas medical insurance, before coming up with a realistic number. And of course, the wild card is inflation. If the goal is a few years down the road, I will have to put the costs as higher than what I see now.
Adaptable
Nothing is written in stone, and if you are willing to adjust your expectations, a lot more is achievable.
The one package that caught my attention was around $8,000 to South Africa. So around Rs 5.87 lakh would be just the safari cost. My first instinct was to let go of my dream. That is why a framework like this helps; you are forced to rationalise and adapt accordingly.
Did I have to go to South Africa, which is known to be more expensive than Kenya or Tanzania or Namibia? The above tour was a private expedition, where the service level was premium. There was no need to opt for either. Also, it was around 10 days, when a safari can be done in a shorter time frame. There were plenty of economical options once I got flexible.
Realistic
This is the most difficult. When you have a dream, you don’t want to be realistic. When you get too pragmatic, you can’t realize your dream.
A double-income couple with no dependents may have no problem in saving Rs 24 lakh within a year. But another double-income couple with dependent parents and a child, even if they earn more, may struggle for that very amount.
Here is the question I posed to myself: Based on my monthly income and expenses, what are the discretionary funds that I can contribute to this goal? Using that as a broad guide helps stay within one’s boundaries. Also, I am hellbent on being debt free, so there is no way I am going to finance my trip using my credit card or taking a personal loan. If it is not possible to pay for it with zero debt, I scale down dramatically on what I expect or start living frugally to accummulate more funds.
Time-bound
I may set my goal for 2022 but may be unable to save sufficient funds within 18 months. In that case, I have no choice but to push my goal to 24 months.
Your clearly defined timeline is not just when it is convenient for you, but when you have accumulated the required capital. Remember, it is not just saving for one goal. Numerous goals clamor for our attention and capital, both of which are limited in supply.
I have the retirement goal running parallel with this holiday goal. And there is no way I am going to start saving less for retirement just to achieve this travel goal. Which means, I have to increase my savings (by cutting down on expenses) or push the date of the holiday.
Quantifying the goal in terms of amount and tenure, will dictate the asset allocation. If the goal is just 24 months away, I will not be happy going all into equity, though I am very comfortable doing that for my retirement kitty.
They all work together…
Evidently, you cannot work it out in a rigid step-by-step process; each overextend and draw from the other. But the framework provided by SMART goals does help in pushing up your chances of success. And if you want to be intentional in what your money offers you, you need to sit down and get clarity on your goal. Remember, the days are long but the years are short. Make your money work for you.
Investment Involves Risk of Loss.