Family Finances Goal Setting for 2021

For many families, 2021 is going to be a pivotal year. Coming on the heels of one of the most challenging years in history, with an end to the pandemic in sight, the New Year brings a feeling of renewed optimism among families that they can get back on the right track. However, optimism is no substitute for having clearly defined, achievable goals, without which very little will get accomplished. But, goals without a strategy to achieve them are no more than pipedreams. It is easy to set a goal; making it happen is an entirely different thing.

You are probably familiar with the theme: A person sets a goal and either fails to achieve it or becomes discouraged when he realizes it is too difficult and then says, “It wasn’t a realistic goal anyway.” That is typically the easy way out for people who did not think the goal through and did not have a solid strategy for achieving it. More often than not, they didn’t have the discipline to see it through because they didn’t have a realistic plan for achieving it.

The problem is not that the goal is unrealistic; it’s that there is no realistic plan in place for achieving it. When that happens, there is no emotional attachment to the goal, which renders it meaningless. It is important to set achievable goals that are clearly defined and quantifiable. But, you really will not know if it’s achievable until you develop a plan. The goals can be significant for young families – buying a house, having more children, or funding college. But, if the goals are not perceived as achievable, they become hopeful aspirations, which do not really inspire people to take action or make sacrifices.

How to Set Achievable and Inspiring Goals

You have probably set many goals over your lifetime, but the only ones that really matter are the ones you achieve. What was different about those goals that made you work to achieve them? The answer for many of them was “motivation.” There was something about the goal that inspired you and made it your focus. For the bigger, more challenging goals, you are not likely to muster the motivation needed to follow through unless you have an emotional attachment to them. If you cannot visualize the outcome, actually feel the satisfaction of achieving it, you are less likely to maintain the motivation that keeps you moving forward.

Although it is not very difficult, there is an art and a science to setting achievable goals – a process that young families can use to determine just how realistic a goal is and then create the plan to achieve it.

Goal Setting Process for Families

1. Make a list of the things you want and need for your family, dividing the list into “must-haves” and “nice to haves.”
2. Determine a time frame for each and relist them from the shortest to the longest time frames.
3. Rank your needs and wants according to their importance, with “1” being vitally important and “10” being not at all important. Your needs should have a higher ranking than your wants.
4. Calculate the cost of your goals. You could do this by estimating the current cost and then use an online future value calculator to calculate the future cost based on an average inflation rate (i.e., 3%).
5. Determine how much it will take to save for each goal. You can use a free online calculator like the ones available at Bankrate.com to crunch the numbers for you. For example, if a goal will cost $25,000 in 15 years, you would need to save $159 a month based on an average annual return on your money of 5 percent. Do this for each of your goals.
6. Determine your savings commitment. Develop a family budget to determine how much you can commit to savings each month. After squeezing every penny out of your budget that can be applied to savings, make that your savings commitment. If you cannot come up with the amount needed to meet your total savings goals, you need to find some more budget savings or focus on your top priorities. As your financial situation improves, you can increase your savings commitment and add more savings goals.
7. Break your savings commitment into short- and long-term goals. For short-term goals, you will want to use vehicles like savings or money market accounts and, for long-term goals, you can use vehicles that can generate a higher return, such as mutual funds or exchange-traded funds.
8. Track your progress as a family. Get everyone involved so you can create some accountability. Review your goals and your savings progress to keep everyone motivated. If you are not on track, ask for ideas from family members about what budget items can be cut or how to increase savings to get you back on track.

Now go and make 2021 your best year yet.