The Power of Goal Setting: How to Unleash Your Financial Potential
- Davina Jackson
- Feb 9, 2024
- 13 min read
Updated: Mar 8, 2024
Welcome to The Woman CFO – a space crafted just for you, where we embark on a journey of financial empowerment.
Today we're going to dive deep into the art of setting financial goals and how to apply them to your financial success.
Goal setting is an essential financial strategy because it allows you to take control of your financial futures, achieve aspirations, and create lasting financial stability and prosperity.
For women, financial goal setting promotes empowerment, independence, security, long-term planning, the ability to overcome gender financial gaps, and build wealth.
Are you ready to dive in? Let's go
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The Importance of Financial Goals for Women
Ladies, can we get real for a moment? Women often face unique financial challenges, including the gender pay gap, longer life expectancy, and higher healthcare costs in retirement.
According to the National Foundation for Credit Counseling, women, on average, retire with 30% less savings than men, and only 12% of women are "very confident" in their ability to fully retire with a comfortable lifestyle. All while 64% of women report not having a budget.
This is why setting clear, actionable financial goals is your secret weapon to bridge that gap and secure your financial future.
But, before we jump into setting goals and deciding which goal-setting method is best for you, let’s lay the foundation of understanding your financial landscape.
Understanding Your Financial Landscape
Picture it... You're embarking on a cross-country road trip. Do you hit the road without checking your fuel gauge or knowing how much money is in your wallet? Absolutely not!
Similarly, understanding your current financial situation is crucial before setting sail towards your financial goals.
Let's talk understanding your financial landscape in 3 steps.
Step 1: Understand Your Income and Expenses
First things first, let's talk about money coming in and money going out - aka your personal income statement.
A personal income statement is like a report card for your finances. It shows how much money you earn and how much you spend over a specific period, usually monthly or yearly.
Here's a simple breakdown:
Income: This is the money you earn from sources like your job, freelance work, or investments. It includes your salary, wages, bonuses, and any other income you receive.
Expenses: These are the things you spend your money on, such as rent or mortgage, groceries, utilities, transportation, entertainment, and more. Expenses are typically categorized into fixed expenses (like rent or mortgage) and variable expenses (like groceries or dining out).
Net Income (or Profit): To calculate your net income, subtract your total expenses from your total income. If your income is higher than your expenses, you have a positive net income, which means you're earning more than you're spending. If your expenses are higher than your income, you have a negative net income, which means you're spending more than you're earning.
Income
Minus Fixed Expense
Minus Variable Expense
Net Income
The purpose of a personal income statement is to help you understand your financial situation better. By tracking your income and expenses, you can see where your money is going, identify areas where you may be overspending, and make adjustments to your budget as needed. This can help you achieve your financial goals and improve your overall financial health.
Money Tip: Use your favorite budget app, budget book, or create a simple Excel spreadsheet to create your personal income statement.
Step 2: Assess Your Assets and Liabilities
Next let’s look at your assets and liabilities - aka personal balance sheet.
Your personal balance sheet helps you understand your financial situation by showing you what you own (assets) and what you owe (liabilities).
It's like taking a financial selfie – it gives you a clear picture of where you stand financially at a specific point in time:
Here's a simple breakdown:
Assets: Think of assets as everything you own that has value. This includes things like:
Cash in your bank accounts
Investments (like stocks, bonds, or retirement accounts)
Your home or other real estate
Vehicles
Personal belongings (like jewelry or electronics)
Liabilities: Liabilities are the opposite of assets. They represent what you owe to others. This includes:
Mortgages or loans for your home, car, or education
Credit card debt
Personal loans
Net Worth: To calculate your net worth, subtract your total liabilities from your total assets.
This gives you a snapshot of your overall financial health. If your assets are worth more than your liabilities, you have a positive net worth. If your liabilities are greater than your assets, you have a negative net worth.
Total Assets
Minus Liabilities
Net Worth
Do not panic if your net worth is lower than expected. It's natural to feel concerned, but use this exercise as a learning opportunity and motivation to make positive changes in your financial habits and decisions.
Tracking your balance sheet over time can help you monitor your progress toward your financial goals and make informed decisions about your money.
Step 3: Craft Your Financial Snapshot
Put the above puzzle pieces together and create your financial snapshot.
Now, take a step back and look at the full picture.
How does your income, expenses, assets, and liabilities stack up? Are there areas where you can trim expenses and/or increase income? How do you feel about your net worth? Is it more or less than expected?
Understanding financial landscape is important for women because they face unique financial challenges such as the gender wage gap, career breaks for caregiving, and living longer in retirement - where median retirement savings at $23,000 for women compared to $76,000 for men.
Next it’s time to roll up our sleeves and dive into the heart of goal setting.
Choose the Right Financial Goal Setting Method
Goal setting is more than throwing darts at the board. It's a strategy and personalized roadmap to financial success. To help you build yours, let’s tap into 3 proven goal-setting methods:
1. SMART Goal Setting
SMART is more than just a catchy acronym. It’s about setting goals that turn dreams into actionable steps that lead to real financial success. SMART goals are clear, achievable, and aligned with your vision for the future. Choose this method if you prefer a structured and systematic approach to goal setting that promotes clarity, accountability, and success.
Specific: Your goals should be clear and specific, leaving no room for ambiguity. For example, ask yourself how much I want to save? By when? For what purpose? "I will save $5,000 for a down payment on a home by December 31st."
Measurable: Your goals should be quantifiable, allowing you to track your progress along the way. If you can't measure it, how will you know when you've achieved it? Think in terms of numbers and metrics – whether it's dollars saved, debt paid off, or investments made. "I will pay off $3,000 of credit card debt within the next six months."
Achievable: Setting goals that are too lofty or unrealistic can set you up for frustration and disappointment. Be honest with yourself about what's feasible given your current circumstances. "I will increase my monthly retirement contributions by 5% starting next month."
Relevant: Your goals should align with your values, priorities, and overall financial objectives. Ask yourself why this goal is important to you and how it fits into the bigger picture of your financial journey. "I will establish an emergency fund equivalent to six months' worth of expenses by the end of the year."
Time-bound: Finally, every goal needs a deadline. Without a timeframe, your goals may linger indefinitely, lost in the sea of "someday." Set a specific deadline for each goal, creating a sense of urgency and motivation to take action. "I will create and stick to a monthly budget by the end of this month."
Put SMART Goals Into Action: Grab your pen and paper and start brainstorming your own SMART financial goals. Remember, each goal should be specific, measurable, achievable, relevant, and time-bound. Don't be afraid to dream big, but also be realistic about what you can accomplish.
2. Values-Based Goal Setting
Values-based goal setting guides you in the direction of what truly matters to you.
Instead of focusing solely on numbers and metrics, this approach encourages you to align your financial goals with your core values and aspirations.
Choose this method if you want to create goals that are deeply meaningful, authentic, and fulfilling, leading to greater satisfaction and success.
1. Identify Core Values
Your values are the guiding principles that shape your life and define what's truly important to you.
Take a moment to reflect on what matters most to you whether it’s family, freedom, security, adventure, or something else entirely. There are no right or wrong answers here – just what resonates with you on a deep level.
2. Align Your Financial Goals with Your Values
Bring your core values to the forefront of your financial goal setting.
Ask yourself: How do my financial goals align with my values? For example, if family is a core value, your financial goals might include saving for your children's education or planning for family vacations.
If adventure is important to you, your goals might involve setting aside money for travel or pursuing entrepreneurial ventures.
Examples of Values-based goals:
Family: "I will save $10,000 for my child's college education fund to ensure their future success."
Security: "I will establish an emergency fund equivalent to six months' worth of expenses to provide peace of mind and financial stability."
Freedom: "I will pay off my student loans within the next three years to free myself from the burden of debt and pursue my passions."
Community: "I will donate 5% of my monthly income to charitable organizations that support causes I care about, such as education and healthcare."
Why Values-Based Goal Setting Matters for Women: Values-based goal setting is more than just numbers – it's about creating a life that reflects who you are and what you stand for. By aligning financial goals with values, women can create a sense of purpose and fulfillment in their financial journey.
3. Incremental Goal Setting
Incremental goal setting encourages you to break goals down into smaller, more manageable tasks.
It shifts focus to celebrating every small victory along the way, building momentum, and staying motivated for the long haul.
1. Break Down Big Goals
Let's say you have a big, audacious goal – like saving $10,000 for a down payment on a house. Instead of feeling overwhelmed by the enormity of the task, break it down into smaller, more manageable milestones.
Start by setting a goal to save $1,000 in the next three months.
Once you achieve that, celebrate your success and set a new goal to save another $1,000. Before you know it, you'll be well on your way to reaching your ultimate objective.
2. The Psychology of Small Wins
Research shows that celebrating small wins can have a powerful impact on motivation and productivity. When you achieve a small goal, your brain releases dopamine – the feel-good chemical that makes you want to keep going.
Examples of Incremental Financial Goals:
Saving: Instead of setting a goal to save $10,000 in one year, start by saving $100 per week. Once you achieve that, increase it to $150 per week, then $200, and so on.
Debt Payoff: If you're working to pay off credit card debt, start by paying off the smallest balance first. Once that's paid off, roll that payment into the next smallest balance, and so on.
Investing: If you're new to investing, start by investing a small amount each month in a low-risk index fund. As you become more comfortable, gradually increase your investment contributions.
Put Incremental Goal Setting into Action: Take some time to review your big financial goals and break them down into smaller, more manageable tasks. Set specific deadlines for each milestone and celebrate your progress along the way.
Remember, every small step you take brings you closer to your ultimate financial destination.
Goal Setting by Life-Stage
The choice of goal-setting method can vary depending on individual preferences, circumstances, and life stages. However, certain goal-setting approaches may resonate more with specific age ranges among women:
SMART Goals for Young Women (Teens to Early 20s)
SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound) are particularly beneficial for young women who are just starting their journey into adulthood.
This age group may benefit from the structured approach of SMART goals as they begin to explore their aspirations, set academic and career goals, and establish financial habits.
SMART goals provide clear guidelines for setting and achieving short-term objectives, such as earning good grades, securing internships, or starting a savings account.
Values-Based Goal Setting for Women in Their Mid-20s to 30s
Women in their mid-20s to 30s may find value in a more introspective approach to goal setting that aligns with their core values and life priorities.
At this stage, many women are navigating important life transitions such as career advancement, marriage, starting a family, or pursuing further education.
Values-based goal setting allows women to clarify their values, define their long-term aspirations, and make decisions that are congruent with their personal beliefs and priorities.
Incremental Goal Setting for Women in Their 40s and Beyond
As women enter their 40s and beyond, incremental goal setting can be particularly effective in helping them manage and adapt to life changes.
This age group may face a variety of challenges and opportunities, including career shifts, caregiving responsibilities, and planning for retirement.
Incremental goal setting allows women to break larger objectives into smaller, more manageable steps, making it easier to stay focused, motivated, and resilient in the face of changing circumstances.
Combination Approach for All Ages
While certain goal-setting methods may be more commonly associated with specific age ranges, it's essential to recognize that individuals may benefit from a combination of approaches throughout their lives.
Women of all ages can benefit from the flexibility to choose goal-setting methods that best suit their needs, preferences, and life circumstances.
Ultimately, the most effective goal-setting approach is one that empowers women to define their aspirations, take action towards their goals, and live a life aligned with their values and priorities.
Create Your Personalized Roadmap
Let’s take a short breather. We've covered a lot of ground and it would be helpful to recap all the gems we've unearthed along the way.
Understanding Your Financial Landscape
In the first section, we delved into the importance of assessing your financial standing.
By understanding your income, expenses, assets, and liabilities, you gain a clear picture of your financial health and pave the way for future success.
Pick the Best Goal Setting Method for You
SMART Goal Setting: These goals are Specific, Measurable, Achievable, Relevant, and Time-bound. The key is to turn dreams into actionable plans.
Values-Based Goal Setting: This method aligns your financial goals with your core values and creates a sense of purpose and fulfillment in your financial journey. By setting goals that reflect what truly matters to you – whether it's family, security, freedom, or community – you can create a life that resonates with who you are at your core.
Incremental Goal Setting: This method breaks down big goals into smaller, more manageable tasks, and is the secret to staying motivated and making steady progress. With examples ranging from saving for a down payment to paying off debt, we saw how celebrating small wins can create a positive feedback loop that keeps you moving forward.
Goal setting according to life stage: By aligning financial goals with specific life stages, women can effectively prioritize their financial needs and aspirations, ensuring they are well-prepared for each stage of life.
Now it’s time to prioritize your goals. You may have multiple financial objectives – from paying off debt to saving for retirement to buying a home.
While they're all important, some may take precedence over others. For example, building an emergency fund might take priority over saving for a vacation.
Take a moment to rank your goals in order of importance, considering both short-term and long-term objectives.
Once your financial roadmap is set, make it a habit to regularly review and adjust your plan as needed.
Life is full of surprises, and your financial plan should be flexible enough to accommodate changes in your circumstances or priorities.
By staying proactive and adaptable, you'll ensure that your roadmap remains relevant and effective in guiding you towards your financial goals.
Remember, your financial roadmap isn't set in stone – it's a living, breathing document that evolves with you.
Now, let’s talk about how to handle challenges and motivation to keep you going.
Staying Motivated and Overcoming Challenges
Motivation is like fuel for your financial journey – it's what keeps you moving forward, even when the going gets tough.
But staying motivated isn't always easy, especially when faced with setbacks or obstacles.
Understanding what motivates you – whether it's achieving financial freedom, providing for your family, or pursuing your passions – is key to maintaining momentum and staying focused on your goals. Let’s look at a few ways to stay motivated:
Set Milestones and Celebrate Progress
One of the best ways to stay motivated is by setting milestones and celebrating your progress along the way.
Break your big goals down into smaller, more manageable tasks, and celebrate each milestone you achieve.
Whether it's paying off a credit card, reaching a savings goal, or sticking to your budget for a month, every small win deserves to be celebrated.
Seek Support and Accountability
Seeking support and accountability can make all the difference in your financial journey.
Whether it's enlisting the help of a financial advisor, joining a money management group, or partnering with a friend or family member, having someone to cheer you on and hold you accountable can help keep you motivated and on track.
Manage Stress and Overcoming Setbacks
Let's face it – life happens, and sometimes things don't go according to plan.
Whether it's unexpected expenses, job loss, or market downturns, setbacks are a natural part of the financial journey. The key is to approach them with resilience and grace, rather than letting them derail your progress.
Practice self-care, lean on your support system, and remember that setbacks are temporary – you have the power to overcome them and keep moving forward.
Take some time to reflect on what motivates you, set achievable milestones, seek support and accountability, and approach setbacks with resilience and grace.
Your Financial Journey Continues
Take a moment to pat yourself on the back, because you've accomplished something truly remarkable.
You've gained a deeper understanding of your financial landscape, set meaningful goals that align with your values, and developed actionable plans to turn your dreams into reality. (Give yourself a round of applause – you deserve it!)
Now, remember you're not in this alone. We cannot emphasize the importance of seeking support and accountability enough.
Whether it's leaning on a trusted friend, family member, or financial advisor, having a supportive community - like The Woman CFO community - can make all the difference.
So don't be afraid to reach out, ask for help, and celebrate your successes together. We're stronger when we lift each other up!
And last, but certainly not least, know that your financial journey is just that – a journey.
It's not about reaching a destination, but rather embracing the ups and downs, the twists and turns, and the lessons learned along the way.
Keep dreaming, keep striving, and keep pushing the boundaries of what you thought was possible. Your future is bright, and we can't wait to see all the amazing things you'll accomplish.
Until next time, stay empowered, stay fabulous, and keep chasing those dreams!
Ready to embrace your inner CFO? Join our community. Share your financial goals, budgeting tips, and success stories in the comments.
