Financial Cleanse Week 3: It’s Time to Set Your Goals.

Congratulations, because if you’ve successfully completed Weeks 1 and 2, the hardest work is done. Now that you’ve developed a system for tracking your spending and taken a hard look at your budget, you’re in great shape to continue on your path to mindful spending.

This week we shift gears. And to be honest, I think that this is the fun week. Instead of focusing only on the details, you’ll take a step back and think about the big picture. Ask yourself, what type of future would you like to build for yourself and your loved ones? If you could choose the most important things you’d like to achieve in one year, five years, or ten or more years, what would those be? Buy a house? Or save up a cash cushion for an emergency fund? Retire at age 60? This is your chance to think beyond your day-to-day issues, and set your sights on larger goals.

Another way to think about this is that for the first two weeks of the Cleanse, you were focused on where your money is going now. This week you’ll adjust that view to think about where you want your money to go in the future.

Note: This week continue to track your spending -- both essential and discretionary. Also keep using cash for your nonessentials as much as possible. This is the best way I know of to practice mindful spending.

A few rules of the road: Before we get started, just a few words on goal-setting. I’m sure you’re all familiar with SMART goals. And perhaps that feels like old news. But when it comes to financial goals, the principles make a lot of sense.

• First, make your goals specific and measurable. After all, we’re talking about numbers here.
• Next, make sure your goals are attainable and realistic. Otherwise we’re just dealing in fantasy.
• And finally, aim to make your goals trackable. It’s essential to stay tuned in and measure your progress.

Putting this together, instead of saying something like “I want to be independently wealthy,” flesh out the picture. It’s much more helpful to make a statement along the lines of “I’d like to retire with $1 million in ten years,” or “In ten years, I’d like to be able to pay full freight for my daughter to attend any college she wants,” or perhaps “I’d like to pay off my $5,000 credit card debt within the next year.”

Before you get started. Just a few more things. First, you’ll see below that we ask you to write down your goals. This is important. Making a mental note is nice, but actually committing your goals to paper increases the likelihood that you’ll be successful.

Second, we’re also asking you to specify just one goal for each time frame. Of course you may have multiple goals, and that’s great, but for this week we’d like you hone in on your highest priorities.

And finally, as you create your goals, do the math. A savings calculator like this one can help you understand exactly how much money it will take to achieve each goal. Play around with different scenarios until you hit on the best combination of time and money. 

Let’s get going!

1. Write down one primary short-term goal, and assign a dollar amount.

For this goal, think one year or less. Perhaps you want to build up your emergency fund or eliminate your credit card debt. In keeping with your SMART goal approach, be sure to calculate exactly how much you will need to set aside every month to make this goal a reality.

 2. Write down one primary medium-term goal, and assign a dollar amount.

Now think three to five years in the future. Do you want to buy a house? Or itching to start a new business venture? Figure out how much it will cost, and how much you’ll need to save.

3. Write down one primary long-term goal, and assign a dollar amount.

And finally, it’s time to think ten years or longer. For many people this could be a child’s college education, or it could be retirement, or you name it! Once again, though, it’s important to think dollars and cents. There are several planning tools available online, like this one to help you prepare for retirement.

Quick Tip: Once you’ve established your savings goals, be sure to make regular progress checks. As you see your balances growing, you’ll be that much more motivated to keep it going!

So far I’ve talked a lot about expressing your financial goals in terms of dollars. And that’s essential. However, that said, one of the most important lessons I’ve learned over the years is that building wealth just as much about zeroing in on your dreams as it is about saving and investing. Sounds corny, maybe, but I swear it’s true. Unless you know what you want to achieve, all the money in the world will get you nowhere.

So there you have it: Week 3. As you examine your priorities and establish your goals, be sure to share them with your family and trusted friends (or your Cleanse buddy!). We also invite you to connect with your fellow financial cleansers on LinkedIn. Also, please tell our @CarrieSchwab Twitter followers about your discoveries and find out what others are doing by using the #FinancialCleanse hashtag.

And if you haven't yet downloaded the Financial Cleanse Quick Start Guide, check it out. If you tack it up in a plainly visible place at home or in the office, it can serve as extra motivation to keep you on track!

Carrie Schwab-Pomerantz is president of Charles Schwab Foundation and senior vice president at Charles Schwab & Co., Inc., Member SIPC. Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation that is not part of Schwab or its parent company, The Charles Schwab Corporation.