This is the second day in our 31-Day Money Challenge. Over 31 days we’ll publish 31 podcasts, each designed to help you move closer to financial freedom. Yesterday we interviewed Jean Chatzky about financial freedom. In today’s podcast, we cover how to set effective financial goals you’ll actually achieve.

Sponsors: The 31-Day Money Podcast is sponsored by Betterment and Personal Capital.

Betterment and Personal Capital are two tools I use to make investing easier, less expensive, and more effective.

Setting goals is an important part of the process of improving our finances. It’s so easy to get bogged down in the day-to-day pressures of life. Goals help us think beyond the daily details of life and focus on the big picture. So in this episode, we cover (1) how to set effective goals, and (2) tips on achieving those goals.

How to Set Effective Financial Goals

Consider the Past: We’ll cover how considering your history with setting and achieving (or not) financial goals can help you set more effective goals now. By understanding past successes and failures, you can better prepare yourself to achieve financial goals in 2014. Find your Motivation: We all find motivation in different ways. What motivates me may not motivate you. One key to successful financial planning is understand what motivates you. By tapping into what drives you, you’ll set goals tailored specifically to you and increase the likelihood of success. In this podcast, I’ll also discuss what I learned about motivation from Jenny Craig of all places. Be realistically unrealistic: Goals need to push us, but not overwhelm us. Set goals that are too easy and you’ll likely never reach your potential. Set goals that are too aggressive and you’ll likely get discouraged. For me, the sweet spot can be found with goals that I describe as “realistically unrealistic.” Some call it stretch goals. In the podcast we’ll also talk about what Casey Kasem can teach us about setting the right goals, and I’ll share how Dave Ramsey motivated me to tackle a seemingly impossible goal. Make Your Goals Specific and Actionable: Goals need to be specific. A good way to tell if your goals have met this test is to ask how you’ll know when you’ve accomplished your goal. If you can’t answer that question, it’s time to rethink your goals. In addition, goals should be followed up with an action plan. A good start is to ask what your first step will be to achieve the goal.

How to Achieve Your Goals

Personalize your goal: We discuss how to tailor goals to your specific circumstances. While many people share common goals (e.g., investing for retirement, getting out of credit card debt), what one must do to accomplish those goals is often very specific to their circumstances. Remove bad choices: We’ll discuss how you can set yourself up to succeed by making it harder to make bad choices. Automate: By automating aspects of your financial live, you increase the chances of success. You also simplify your life. We discuss ways to incorporate automation into your financial goals. Set interim goals: My example of credit card debt, then school loans, then home equity and now my mortgage Track your progress: Tracking your progress toward a goal is important for two reasons. First, it can be motivational as you see yourself getting closer and closer to your goal. Second, it keeps you focused on your goal. And if you are finding it difficult to figure out how to track your goal, reconsider whether the goal is specific and actionable. Get help: Particularly with financial goals, having somebody you trust encourage you and hold you accountable is critical for most. I discuss how getting help allowed me to reach a very important goal in my life. Develop good habits: “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” Aristotle. The most important thing financial goals can do is to help you start and maintain good habits. We discuss how.

Resources

SpeakPipe: Leave a message with your top financial goal for 2014, a question or a comment, and I’ll play your message on a future podcast.

Day 3: How and why to prepare your net worth statement