In my previous post here, the goal that I set is to clear debts and save up at least RM500 in 3 months. You can see that I have set a clear deadline and the amount needed to achieve the goal. Therefore, in this post, I will delve deeper into setting financial goals and the mindset needed to achieve it.
Setting financial goals
Financial goals is very important for everyone. In fact, setting life goals, relationship goals, career goals are all important. Goals or visions serve as a direction so that we will not get lost in our life. Financial goals can be retiring comfortably or having RM1mil in bank account. For frugalavishers, our financial goals are to achieve financial independence to spend on experiences without worrying about money.
Short, mid, long term financial goals
To achieve financial independence is a long term financial goal. It is the end goal so that we know we are heading to the correct direction. However, now that you have the destination, you need all the checkpoints in between which would be your short and mid term goals. As a reference, below are the goals and the time frame:
- short term – 3 months to 1 year
- mid term – 1 to 3 years
- long term – 3 years and more
To set your financial goals, start with the long term goals first and then break down to smaller pieces that are achievable. Take for example the financial goals for frugalavishers:
- short term – clear credit card debts and personal loans and save RM500
- mid term – passive income to match or surpass active income
- long term – achieve financial independence to spend on experiences without worrying about money
Purpose of long term financial goals
The short and mid term goals can change accordingly due to the shorter time frame. However, the long term financial goals should be quite fixed and unchanged. Therefore, the long term goals should be backed by strong intrinsic or extrinsic motivation. For example, the reason to achieve financial independence is so that we can spend on experiences without worrying for money.
To make the reason stronger, we can use the 5 Why’s. The 5 Why’s is a way to drill down deeper into your reason which helps to strengthen it. For example:
1. I want to achieve financial independence.
Why do you want to achieve financial independence?
2. So that I can spend it on experiences.
Why do you want to spend it on experiences?
3. Because materials can break or spoil but memories last forever.
Why do you want to create lasting memories?
4. Because I want to treasure my loved ones while I still can.
Although it is less than 5 Why’s, you know the reason behind gaining financial independence is because of your loved ones. There’s a Chinese proverb ‘心想事成’ which translates directly to ‘using your heart to think makes things happen’. If a reason evokes emotion, it is much stronger and thus you will work hard towards your long term goals.
S.M.A.R.T.
Next, we take a look at the famous SMART for setting goals. Here’s a refresher on the acronym:
- S – Specific
- M – Measurable
- A – Achievable
- R – Relevant
- T – Time-bound
Let’s take a look at our financial goals example again:
- short term – clear credit card debts and personal loans and save RM500
- mid term – passive income to match or surpass active income
- long term – achieve financial independence to spend on experiences without worrying about money
And rework again to fit the SMART criteria:
- short term – clear all credit card debts and personal loans and save RM500 in 3 months
- mid term – RM5k passive income per month in 3 years while maintaining active income
- long term – RM20k passive income per month in 10 years and retire
You can see that we made the goals more specific and measurable by adding in amounts. Besides that, we have added in time frame so we know if we are on track.
Mindset
Now that we have a set of short, mid, and long term SMART goals with a strong purpose behind the goals, let’s discuss on mindset. Besides the influence from our surroundings, media plays a huge role in shaping our mindset. With the advancement of technologies, things are happening in fast pace like never before. Instead of newspapers that showcase major news the next day, social media will be spreading like fire within seconds after a major happening. We now have 5G that can have speed up to 10k+ Mbps which allows automation like self-driving cars.
Therefore, the generation nowadays are attracted to things that have fast or instant results. ‘Use this product to lose 10kg in 7 days’. ‘Buy our software to earn 10k from investment in 1 month’. Sounds familiar? All the advertisements on media creates the mindset that results can be achieved in a short amount of time. This then creates the behavior of wanting fast results without much efforts.
Fast and easy?
However, if we look at famous, successful people like Warren Buffett, Bill Gates, and Mark Zuckerberg, they do not achieve success overnight. Warren Buffett does not simply buy into 1 stock and the stock suddenly jumps 1000% the next day. He spent many hours of research and reading financial statements before buying a stock. The stock will then takes time to increase in price. Same goes to Bill Gates and Mark Zuckerberg. They do not just created Microsoft and Facebook and got rich overnight. But the media keeps focuses on their successes that creates the impression that their success comes fast and easy.
Therefore, to achieve financial independence for frugalavish lifestyle, it will take time and effort. However, I will guide you step by step to achieve the financial goals together. There are a lot of articles on the different mindsets between the rich and the poor. Here’s one recommended article for you. We should train our mindsets to be ‘rich’ to achieve our financial goals to becoming financial independence.
Conclusion
To summarize, we will first need to create a short, mid, and long term financial goals. The goals should be SMART and have a compelling reason behind so that we will not sway from the long term goals. Once the goals are set, we should prepare our mindset that success takes time and effort.
Now that we have the financial goals and the correct mindset, the strategies and actions will be easier to be executed and we will be one step nearer to our goals.
Feel free to share us your short, mid, and long term financial goals in the comments section.