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6 Steps to Set Good Financial Goals

Article last updated: January 30, 2023

How to set good financial goals?

Whether you are young adults seeking Financial Independence and Early Retire (FIRE) or a parent saving up for college tuition for your children, setting investment goals is an essential element in managing your personal finance successfully.

What is a Financial Goal?

A financial goal is a target set for managing money. It is commonly used to create a financial plan further. While there are many frameworks for goal setting, one of the most used methods is SMART.

What is a SMART Financial Goal?

SMART is a framework that can be used in any goal setting, not just on investment, although for this article, we will focus on investment-related goal setting. SMART stands for Specific, Measurable, Achievable, Relevant, and Time-based.


Your investment goal should be specific and well-defined. This step means clarifying what you want to accomplish and how you plan to do it. For example, instead of simply stating, "I want to make more money," a specific goal might be, "I want to start investing today and continue to save toward my retirement in 20 years."


Your investment goal should be measurable, so you can track your progress and determine whether you are on track to achieve it. Depending on the type of outcomes, you can use the size of your portfolio at the end of the period as a measure of success. Or you can use the monthly cash flow you receive from dividends as a goal as well if you are looking for passive income. If you are looking for ways to track your financial goals, Portseido offers you a way to do that easily. Try it for free.


This is the most challenging part of goal setting. To set an achievable goal, it is essential to understand the realistic return you can expect, given your risk tolerance, how much you can save and add in over-time, and your time-frame.


Personal finance and investing are closely connected, so your investment goal should be relevant to your overall financial situation and personal goals. For example, consider your age, income, debts, and other financial obligations when setting your investment goal to ensure your plan is realized.


Setting a specific time frame for achieving your investment goal can help you stay motivated and on track. For example, you might set intermediate goals along the way, with progress checkpoints at regular intervals leading up to your final destination.

By using the SMART method to set your investment goal, you can increase your chances of success and work towards achieving your financial objectives.

Let's look at how to utilize this method in practice with step-by-step processes.

How to set your investment goals?

  1. Set your objective. The first step is to define the purpose of this investment. The common goal includes things like retirement, college, large purchase, travel, etc.
  2. Set a measurable goal. Once you have your objective set, the next step is to set a quantifiable goal of what it means to arrive at your goal post. For example, if your purpose is retirement, you can select the goal to be the amount you need for a comfortable retirement. You can calculate that number using many online calculators. Alternatively, you can also set the goal to be the monthly income via dividends or rent.
  3. Set a realistic expected return. Next, you set what you expect to earn in the longer term. It is crucial that this is realistic and aligns with your risk appetite. For example, suppose you are not comfortable holding a large percentage of your portfolio in equities or other relatively risky assets. In that case, it might not be reasonable to expect a high rate of return. So what is reasonable? Historical data can be helpful in this regard. For example, the S&P 500 has returned an average of around 12.5% annually over the past ten years, while the 10Y treasury has an average yield of 3% over the same period. However, it's important to remember that past performance is no guarantee of future results, although it serves as a good guideline for your projection. The Link below gives you some idea of the 10Y return on various types of investments and can serve as a guideline.

Link to 10Y returns on various asset classes

  1. Set a timeframe. Next, you set the period you want to reach that goal. Note that while you might want to get there as soon as possible, setting too short of a time might either turn out to be unrealistic or force you to take a higher risk. It is advisable to set it as realistic as possible subject to your goal, of course.
  2. Set a monthly or annual contribution. Another essential ingredient to reaching your investment goal more quickly is how much you can add periodically. This could represent a certain fixed percentage of your monthly income set aside for this investment goal.
  3. Adjust your parameters. One of the most common problems when setting investment goals is it turns out to be unrealistic. When you set the parameters in steps 3.-5, you can use the calculator below to help calculate the expected portfolio towards the end of the period. Often, those sets up might not be sufficient to reach what you set in 2.

What you need to do now in such a case is to adjust the parameters by taking at least one of the following actions;
  • Reduce your measurable goal
  • Increase your expected return which likely means taking more risk
  • Stretch out the timeframe
  • Add more on a monthly basis

Once these parameters are adjusted so that your ultimate goal and assumptions are aligned, you are all set with the investment goal setting and can begin planning your investment towards the goal.

References and further readings:

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