For most of us, one of the first steps in goal setting is finding a concrete goal or goals that motivate us emotionally. How about a trip around the world, the retirement yacht, the ability to cut back the hours you work, or saving for your children's education?
An example of a short-term goal might be creating a vacation fund to support your vacation plans for the next year or creating an emergency savings fund to cover short-term expenses that might crop up during a period of weeks or months if your regular cash inflow is cut off. In fact, it's essential to consider this scenario. Examples of long-term goals would include retirement planning and estate planning objectives.
Emergency savings fund calculator
Use this emergency savings fund calculator to determine how much you should set aside to cover periods during which you have reduced or no income
This section and the subsections that will follow will tell you how to make your goal measurable, that is, how to provide yourself with a rather clear picture of where the goal is and how close you are to attaining it.
Example
Johnnie Martijn, who owns and operates a snack, has been dutifully saving NAF 500 each month. He has a detailed picture in his mind's eye of what would be the ultimate retirement property: a home overlooking one of the beaches on the island. There are two problems with Johnnie's savings plan: he hasn't reduced the goal to a monetary amount, and he hasn't set a deadline to achieve the goal.
Although Johnnie's vivid imagination may be enough to encourage him to continue saving the NAF 500 per month, this will not necessarily ensure that he will reach his retirement goal. Without knowing how much such a property would cost, Johnnie runs the risk that he won't have enough saved at his retirement to buy such a property. After a lifetime of saving for the goal, this would be a devastating disappointment. But his disappointment probably could be avoided if he had known from the beginning that he would have to increase his monthly saving, or channel the savings into higher yielding investments.
But even if Johnnie knows what his "dream property" would cost, he still has a problem: he hasn't set a target date to attain the goal. Setting such a deadline performs two functions: First, it will tell you how long it will take you to save for the goal. Second, with proper planning, it will allow you to measure at any point in time whether you are on track for meeting the goal, or whether a mid-course correction needs to be made.
In order to make your goal measurable, we suggest two steps: reducing your goals to a monetary amount and setting a deadline to reach the goal.
Example
Assume the same facts as the previous example, with Johnnie saving NAF 500 each month for his retirement goal. He has so far saved NAF12,000 - which he has invested in Certificates of Deposit (CDs) paying 4.5 percent interest.
However, after reading this discussion, Johnnie decides to investigate the price of the beach property, and set a target date for his retirement. He finds out that his ideal retirement property now costs about NAF 100,000 (with local real estate agents telling him that it's likely to appreciate in value at about 5 percent per year), and he wants to retire in 20 years.
To figure if he is on track to meet his goal, let's compare the price he'll have to pay for a similar property in 20 years with how much money he will have accumulated by this time:
Charting Savings Progress
| Cost of Property | NAF 365,300 | |
| Projected savings | ||
| Growth of NAF 12,000 at 4.5 percent for 20 years | 28,944 | |
| Growth of NAF 500 per month at 4.5 percent for 20 years | 188,228 | |
| Total Projected Savings | NAF 217,172 |
Johnnie has a problem: He will be NAF 48,128 short!
He has a couple of obvious choices to remedy this situation:
• He could increase his monthly savings (an increase of NAF 148/month would do it).
• He could move some or all of his savings into higher yield investments. If he increases his yield from 4.5 percent to 6.25 percent, his present savings of NAF 500 per month would be sufficient.
Savings Goal Calculator
What will it take to reach your savings goal? Use this Savings Goal Calculator to help you find out. Enter in your savings plan and view graphically your financial results. Click the report button to get more information about your plan, and what you can do to make sure that it is on track.
