Recently I read a great post on The Poor Swiss about goal setting. This motivated me to take action and write down my own financial goals for 2021. Initially I wanted to set myself goals for the entire year but I figured it would be better to have more timely goals. After all, a lot can happen in a year. So I decided to come up with goals for the first quarter of the year instead. Before revealing my goals, let’s talk a bit about how to set goals.
How To Set Goals
Setting goals is something many people do probably at least once a year—the infamous new year resolutions. However, I’d argue that most people don’t stick with their goals. I think one of the most profound reasons for that matter is that the goals have been formulated poorly. That brings up the question how to formulate goals well. There are different methodologies to do so but in the blog post I mentioned above the author talks about the SMART method which I have used myself in the past. SMART is an acronym that stands for:
One could say that a “good” goal is one that satisfies these criteria. Let’s take an example of a financial goal that is not smart:
I want to become financially independent
Why is that not a smart goal? Well, let’s go through the criteria one-by-one.
Is it specific? I’d say no. After all, what does financially independent actually mean?
Is it measurable? Without a proper definition no.
Is it achievable? Once it’s clear what exactly financially independent means probably yes (although certainly not easy).
Is it relevant? If you are reading this blog then the answer is clearly yes.
Is it time-bound? Clearly no. By when do you want to reach financial independence? Tomorrow, next year or when you turn 40?
My SMART Goals
Instead of making up an example of a smartly formulated goal I decided to share my own financial goals for the first quarter of 2021 with you. Here they are:
Save 40% of my net income (excl. annual bonus) over the first three months of 2021
Invest 100% of my annual bonus by March 31
Deposit the maximum amount of 6,883.00 CHF into my VIAC 3rd pillar by April 1
Increase my net worth to 115,000.00 CHF by March 31
Achieve 600 Applause Points by March 31
Let’s review each goal more closely to see how I came up with these numbers.
I’ve never targeted any savings rate before so why 40%? Well, I create a budget on You Need A Budget and unless it’s totally off (which so far doesn’t seem to be the case) achieving a 40% savings rate seems realistic. I might even do better but given that it’s the first time I monitor this metric I didn’t want to give myself too much pressure.
While many people will use their annual bonus to spend, I decided to use it to fund my (hopefully) early retirement. My usual monthly net income is more than enough for living so saving 100% of my bonus shouldn’t be a problem.
The earlier you max out your yearly 3rd pillar contributions the longer you are in the market (suggesting that you invest which you should!). And the longer you are in the market the more your money can work for you. Thus, I decided to deposit the maximum amount of 6,883.00 CHF by the end of march. A large part of this will come from my annual bonus.
My net worth as of December 31, 2020 is 87,878.29 CHF. This is what I plan to add to make it increase to 115,000.00 CHF by March 31:
|9,807.66 CHF||Save 40% of my monthly net income of 8,137.05 CHF|
|8,000.00 CHF||Save 100% of my annual bonus (this is just a rough estimate of how high it will be in 2021)|
|4,685.76 CHF||Joint 2nd pillar contributions by myself and my employer|
|1,800.00 CHF||Tax refund of 2019 (I only handed in my tax declaration in December 2020)|
|1,542.75 CHF||Refund from last year’s flight to Japan that got cancelled due to Covid|
|737.20 CHF||2% growth of my Interactive Brokers portfolio|
|136.52 CHF||2% growth of last year’s 3rd pillar contributions|
Summing up all these numbers gives 26,709.88 CHF which added on top of my December 2020 net worth makes 114,588.18 CHF. By rounding that amount up I ended up with my goal of 115,000.00 CHF.
In my company we have a nice rewards system called applause. Any employee can give applause to another employee and reward her or him with applause points. One applause point equals one Swiss franc. As of December 2020 I had a total of 425 applause points in my account. Getting it up to 600 looks feasible to me.
There you have it. These are my financial goals for the first quarter of 2021. Did you make any financial goals for 2021 yourself? I’d love to know in the comments below.