Defining your goals in specific, clear, and measurable terms is the foundation of your financial plan — deciding whether they are achievable both psychologically and financially and allowing for adjustments as you get older are important parts of making the plan real.

Making the Goals Specific

Most people start with fairly undefined financial goals. After reviewing their notes from their money journal, they might decide that the goal is “to retire comfortably.” Making the goal more specific will allow you to calculate specific savings goals and will help measure whether or not you're on track to achieve them.

To make the goal specific, put some precise measurable facts within it. For instance, “I want to retire at age 67 with my current income” is a specific goal. “I want to retire from this job at age 55 and then transition to part-time and work until I'm 70” would be another specific goal. Make sure the goal has both a timeline and a financial aspect specifically stated. The previous goal might go further and say, “At 55, I want my job to provide enough income to cover my expenses, but I don't necessarily have to be able to save at that point. I will work part time to avoid withdrawing from my retirement nest egg until I'm 70.” Further planning will help you define that goal more specifically — in this case, by adding a monthly income target.

Decide Whether a Goal Is Achievable

The next step is to check whether your goal is both psychologically and financially achievable. Think about your personality. If the money works out, can you picture yourself actually living the goal? If you've decided that you will work part time for a number of years, can you see yourself doing that, or are you too much of a workaholic to cut back? If part-time work means an entry-level job, are you willing to do that at an older age? Lifestyles are difficult to change. Don't expect that you'll want to live in a way that is dramatically different from the way you live now.

It's a little easier to check whether a goal is financially achievable. In most cases, once you've calculated the monthly savings requirement to meet the goal, you'll see whether you can afford it. The catch is being sure that you have considered all options. A goal that may seem out of reach now may, in fact, be achievable by investing future increases in pay, reducing nonvalued current expenses, or pushing the goal out a few years to give you more time to save.