Mindful Spending Part 3: What Are Your Top Three Financial Goals?

Dear Readers,

It's hard to believe we're already in Week 3 of our Financial Cleanse. If you're just hearing about it, the Financial Cleanse is a 30-day program my team and I developed to help people focus on how they spend their money. It gives you three simple steps to take each week with the goal of establishing what I call "mindful spending."

Week 1 was all about controlling your out-of-pocket weekly expenses (and agreeing to put away your credit cards for 30 days!). Week 2 focused on getting a handle on your overall monthly spending and coming up with a realistic budget. If you missed the first two columns and you're intrigued, you can find them on schwab.com.

But even if this is the first time you're hearing about the Financial Cleanse, read on. Because Week 3 is about setting--and achieving--financial goals, and that's something everybody should be able to get behind.

Start by thinking about the future

To be honest, I think this is the fun part--the part where you take a step back and think about the big picture and maybe dream a little bit. For instance, 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? Save up a cash cushion for an emergency fund? Start a business? Retire at age 60? It's exciting to think beyond your day-to-day issues and set your sights on larger goals.

Make sure your goals are SMART

Chances are you've heard of the concept of SMART goals. It's often associated with job performance or personal achievement, but I think it's equally relevant to financial goals. Quite simply, SMART goals are specific, measurable, attainable, relevant and time-bound.

Think about it. Won't you be more motivated to save for something specific? Something you know you can attain if you just keep going for a certain length of time? And isn't it even more motivating if you can watch your progress toward your goal?

So 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 "I'd like to pay off my $5,000 credit card balance within the next year."

Put your goals on paper

Now make your goals real by writing them down. This is important. Making a mental note is nice, but actually committing your goals to paper increases the likelihood that you'll be successful. Plus, you need to calculate what it will take to reach each goal. Here's what I suggest:

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.

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

Now think three to five years. Maybe it's the down payment on a house or that dream of a month in Tahiti. Just remember to make this goal attainable!

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

Finally, it's time to think ten years or longer. For many people, this could be your retirement, a child's college education, a second home, or you name it! (Just one word to the wise to all parents: saving for college is smart, but don't let it undermine your ability to adequately prepare for retirement.) Once again, though, it's important to think realistically. Be sure it's a goal for which you can measure your progress over time.

Of course, you may have multiple goals, but for the Financial Cleanse, I'm asking people to hone in on their highest priorities. You can add other goals as you achieve these, or change your goals as your life circumstances change. The main point is to work toward something that's tangible and achievable.

Do the math

Once you've zeroed in on your three primary goals, figure out how much you need to save monthly toward each goal. An online savings calculator will help you create different scenarios and timelines so you can realistically fit these goals into your budget. If retirement is your longest-term goal, there are a variety of online retirement-planning tools to help you determine what it will take to get on track.

Once you've established your savings goals and begun to set money aside for them, be sure to make regular progress checks. If you see your balances growing, you'll be that much more motivated to keep going!

Continue to be mindful

Good money management is really about knowing where your money is going and taking control of where you want it to go. So whether or not you participate in the Financial Cleanse, hopefully these ideas will help you make better, more conscious money decisions.

If you're interested in participating, you can download a Financial Cleanse Quick Start Guide. And if you're curious about what current participants are doing and learning, check my Carrie Schwab-Pomerantz LinkedIn page or join @CarrieSchwab Twitter followers by using the #Financial Cleanse hashtag.

Next week, I'll talk about putting it all together and turning this 30-day exercise into a lifetime of mindful spending. I hope you'll join me.

For more updates, follow Carrie on LinkedIn and Twitter.

Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."

This article originally appeared on Schwab.com. You can e-mail Carrie at askcarrie@schwab.com, or click here for additional Ask Carrie columns. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Asset allocation and diversification cannot ensure a profit or eliminate the risk of investment losses. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. Diversification cannot ensure a profit or eliminate the risk of investment losses.

The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.