Setting Effective Financial Goals (With FREE Worksheet)

It’s that time of year. You’re thinking about setting goals for the new year. You also know that most people fail, and fail quickly, with New Year’s goals. Don’t let that discourage you – you CAN set effective financial goals.

This coming weekend we have our annual goal-setting meeting. When we first did this three years ago, there was a lot of uncertainty, insecurity, and frustration throughout. Now, we both look forward to it. Honestly!

We’ve built an approach to setting financial goals that has helped us exceed our goals every year. I’ll share how we effectively set financial goals, and even include a financial goal setting worksheet to help you out!

Goal Setting Concepts

Set Three Types of Goals

One of the biggest mistakes people make is to set only long-term big-picture goals. Long-term goals provide inspiration, but short- and medium- term goals create action to get you there.

I believe in setting:

• Long-term goals
• Medium-term goals
• Short-term goals

These are not simply the same goals with different time frames. Each type has a purpose and each tier of goals should help you achieve the one above it.

Setting each type, increases your chances of reaching your goals. I’ll describe examples below. You can also take a look at a comprehensive list of financial goal examples, including long, medium, and short term here..

Decide on Your Time Frames

Decide the time frame for your goal tiers. Experiment. There is no “right” time frame – it depends entirely on what works for you to keep you motivated and making progress.

Here are the two time frame sets we’ve used:

We have found the first set to be most effective for us. Others prefer the second set for rapid review and adjustment. Still others use much longer time frames.

Again, these are just examples. You may use something entirely different. Do what works best for YOU.

Keep It Manageable

The usual advice is to set no more than 3-5 goals. Too many goals is useless and leads to confusion, distraction, and eventually failure. A famous Peter Drucker quote fits here, “If you have more than five goals you have none.”

Now, since each tier should be a through-line to the upper tiers, I don’t necessarily consider them independent goals. That is, the actions in the short-term goal should help you achieve the medium-term goal, which should be related to your long-term goal.

Still, don’t overwhelm yourself. We only set 1 – 2 long-term goals, but set more for the medium and short terms. 

Goals Are Made to Be Adjusted

Finally, don’t hesitate to adjust your goals in the face of new information. As you work towards goals you may find yourself progressing more quickly, or your circumstances may change. 

Do not be afraid to acknowledge failure. Failure in a goal is as valuable as success IF you learn from it. Analyze why you failed, then adjust.

You’ll also find that often you are achieving more than you expected. This is an opportunity to stretch yourself and strengthen your goal.

We’ve adjusted our long-term FI goal time frame from 12 years, to 7 years, to 5 years as we achieved medium term goals AND built a better understanding of our financial levers and needs. 

If one of us were to lose a job, or we were to experience a significant medical crisis, we’d adjust the goal time farther out rather than foolishly pushing at an unachievable goal.

It is not failure to adjust your goals if it helps you be more effective in achieving them. 

Sticking to a goal that is too easy or not achievable doesn’t win you points – it wastes your time.

Share Your Goals With Someone

I mean this advice in two ways. 

First, if you are in a relationship, include your significant other in setting financial goals. I consider not doing this earlier one of my biggest financial mistakes. When we finally started setting goals together it was a game-changer that improved our relationship AND our financial progress. Just do it.

Second, don’t be afraid to share your goals with others. They can help you sanity-check your goals, suggest adjustments and keep you accountable. 

I know it’s not easy to share your hopes, dreams, and aspirations. Overcome that fear and put yourself out there. You’ll increase your chances of success.

Setting Effective Financial Goals

Okay, now that we’ve gone over some general advice, let’s dig into setting financial goals. Remember – adjust this as needed to make it work for you. If you want to start with a framework, I’ve provided a financial goals worksheet at the end of this post.

Set Your Long-Term Financial Goal(s) First

Your long-term goal may take years to reach. You might adjust it over time, but for now it’s the thing (or maybe things) you feel driven to accomplish. 

I see goal worksheets out there that have short-term goals first. This makes no sense. Your long-term goal is the vision, the flag in the ground, the place you are trying to reach. You need to set it to build effective shorter-term goals. Remember, you can adjust it later.

Common examples of long-term financial goals:

• Debt freedom
• Buying a house
• Financial independence

At different points in our life, each of those was a goal for us. We’ve achieved debt freedom, owned a house, and are now pursuing financial independence.

You can have 2-3 long-term financial goals, but the fewer the better. I prefer 1 large goal.

For example, prior to downsizing our house this year we had a long-term financial goal of financial independence. Connected to that, we also had a goal of paying off our mortgage in 7 years. Both were long term goals, though they were related.

Now, our single long-term goal is to achieve financial independence and optional retirement (FIOR).

Yours may be different. Choose a long-term goal that is achievable but exciting to envision. That’s your long term aspiration! 

Medium-Term Financial Goals Are The Big Building Blocks

Next, intentionally build your medium-term goals as steps to your long-term goal. This is a mistake many make – they don’t break goals into action-oriented steps. Doing so will help you understand yourself better, take more effective action, and dramatically increase your chance of success.

Take your long-term goal and identify what you need to achieve in the current year (or quarter) to make progress toward the goal. Let’s look at some examples related to the long-term financial goals above.

We’ve found setting annual goals for the medium-term to be most effective for us. It gives us time to take on something big, but is not so long that we can’t see and adjust progress frequently.

Short-Term Financial Goals Drive Action and Build Systems

Atomic Habits by James Clear (affiliate link) transformed my thinking about short-term goals. In particular, the quote “You do not rise to the level of your goals, you fall to the level of your systems.”

Some have taken this to mean that goal-setting is pointless. I believe that’s a tragic misread.

You should still set short-term goals, but they should be explicitly about constructing systems. They can even be specific habits to be built. Just get specific about the steps you’ll take to either automate your actions, or single things that you check off on the way to building an effective system.

Also, there should be a direct through-line from your short term goal to your medium-term goal, to your long-term goal.

Your short-term goal builds or strengthens a system

Which achieves your medium-term goal

Which supports your long-term goal.

Each goal tier is related to the other. Your short-term goals are actions you take that build a system that ensures you meet your medium-term goals.

Here’s an example:

You feel immediate success and can choose to add new goals, adjust your current ones, or give yourself some breathing space before your next goal-setting period.

Review Your Goal Progress Regularly

If you want your financial goals to actually lead to change and success, you have to set-up a regular review process. 

As soon as you set your goals, commit to the times when you will review them. These should be regular, but do not need to be frequent. Be intentional, not obsessive!

Related Post: Effective Financial Assessment

Your review should be linked to your time frames.

I shared that we use an annual and quarterly time frame for our goals. As a reult, here is what our review process looks like:

Remember, when you review your goals it is okay to adjust them. In fact, it’s imperative.

Sometimes, you may make them easier based on new information. I think you’ll find that more often you’ll realize you can do more and stretch yourself further.

Setting goals without reviewing and adjusting progress is just dreaming. Dreaming is okay, but intention will actually get you to your long-term goals.

Financial Goal Setting Worksheet

To support you in this process, here is a one-page financial goal-setting worksheet that captures the concepts above. You can download a blank template here.

Here is what the financial goal-setting worksheet looks like filled out with the above example.

Summary: Setting Effective Financial Goals

Goal-setting doesn’t have to be an intimidating process. You can make it easier, and more effective, by following a few simple steps:

• Set three types of goals
• Determine your effective time frames
• Keep the # of goals manageable
• Set your 1-2 long-term goals first
• Set 3-5 medium-term goals that explicitly link to your long-term goals
• Set up to 5 short-term goals that build systems to achieve your medium-term goals
• Review and adjust your goals

We’ve found this process to be very effective for setting financial goals. It has helped us dramatically transform our financial future. I hope it’s helpful for you.