The 4 Steps To Setting Goals & 6 Keys To Achieving Them First you have to decide just what you want. Then you need a plan. Here's how to begin
By Jean Chatzky

(MONEY Magazine) – Think, for a minute, about what goals are. At the most basic level, they're wants. Not wants like "I want a Coke." Or "I want to see that new Richard Gere movie." They're bigger than that. They're your aspirations for the future. For my friends Don and Paige, one goal is to spend the summer of 2005 traveling-- literally--around the world. My brother Dave and sister-in-law Ali want to leave the city behind and buy a house in the suburbs. My husband and I would like to put an addition onto our house. Goals, in other words, are uber-wants.

And setting goals--whether you do it on a piece of paper or on a computer screen or in a conversation over dinner with a nice Cabernet--helps you see them clearly. It helps you flesh them out. It helps you realize the steps you'd have to take to accomplish them. It helps you figure out what achieving your goals might cost and whether the trade-offs are worth it. And--oh, yes--it makes you happy. Goal setters are happier with their finances and less likely to worry about their money.

What's the best way to set goals--and be sure you achieve them?

The four steps of setting goals

1 SEE WHAT YOU WANT. Visualization is step No. 1. Sit in a chair and imagine yourself happy five or 10 or 25 years down the road. Be specific. Be clear. One big reason people fail to reach their goals is that those goals were amorphous to begin with. A goal like "buying your first house soon" is too wishy-washy. Deciding that you'd like to buy a three-bedroom Cape on a half-acre within 30 minutes of your workplace before the next school year is much better. There's no need to be practical about this--think big.

Once you have your vision, focus on how it makes you feel. As the research of Harvard psychologist Dan Gilbert has shown, you're likely very good at identifying the things you believe you want. But when you get them, they often don't make you as happy as you thought they would.

To become a better forecaster of your own happiness, think about how you'll feel if you get what you think you want. What kind of emotions will that elicit? How long will they last? Try to imagine as many aspects of the outcome as you can. Even winning the lottery has its hassles--cold calling from brokers, newfound dealings with the tax man, tension in families.

2 WRITE YOUR GOALS DOWN. Like any good idea, goals need to be written down so that you can refer back to them every now and again. You may decide to change them or to abandon them. That's your prerogative. But they need to be in writing.

Why? Because if you don't write them down, you're likely to forget them. When you see something, your brain holds onto that image for about a half-second. When you hear something, you retain it a little longer, say three seconds. Then you lose it, unless you make an effort to retain it, perhaps by repeating it to yourself over and over or creating an association (Mrs. Green has green eyes). To move a bit of information from your short-term memory into your long-term memory, where it can be available for you to recall, you either have to play with it--or go with the easier alternative: Write it down.

3 TURN EACH GOAL INTO AN ACTION PLAN. Break each goal down into the steps you'll need to take to achieve it. Say your goal is to save $5,000 in the next year. That may sound daunting--but saving $100 a week for 50 weeks doesn't.

4 UNDERSTAND THE TIME INVOLVED. We often overestimate how much we can accomplish in a single day and underestimate how much we can accomplish in a year, given just a little progress every day. That's true whether you're teaching a child to swim, writing a book or trying to lose 10 pounds. Quick fixes rarely work.

The six keys to achieving your goals

For setting goals, you get a substantial payoff. For working toward them, you get a greater one. Nearly half--48%--of Americans who are steadily working toward their goals or have already achieved them say they are very happy with their lives overall. A little over 30% of those who have just started to achieve their goals say they are very happy--and only 18% of those who haven't identified goals or taken the first step toward them say they're very happy. People who have at least started to achieve their goals are much more likely to feel useful, content and confident. And once you start to make steady progress, worry diminishes. How can you get to that point?

1 BEGIN. Once you know what your goals are, act on them. Many people are perpetual dreamers, who hope and hope but never implement. So take the first step, whether it's opening an account at a brokerage firm for the $50 you plan to save each week or saying no when the dessert trolley passes by.

2 RECOGNIZE THE OBSTACLES IN YOUR WAY. Jim Ball, founder of the Goals Institute, who helps individuals and corporations structure and meet their goals, tells of working with a group of women in Omaha. One woman we'll call Robin said she'd feel much better about her financial future if she could save $50 a month. The group named that goal Robin's Nest Egg and figured out where she could come up with the money (biweekly instead of weekly manicures, double coupons). Then Ball asked her what barriers stood in her way. Robin answered without a second thought. "My husband," she said. "He likes to spend money."

Ball shook his head. "That's not going to work," he said. "He's going to get in your way every step. Unless he has an interest in your saving--unless he sees that there's some reward for him at the end of the road--you're not going to be able to save without racking up additional debt. But if you can get him to buy into the program, perhaps together you can save even more."

Once you've isolated your obstacles, it makes sense to avoid them. Manage your environment so that you have little exposure to the temptations that plague you--whether that means walking out of the path of your favorite shoe store or having coffee instead of dinner with the friend who believes you can't get a good bottle of wine for less than $100. Condition yourself to ignore television ads. Then surround yourself with healthy examples--good money managers, sound eaters, avid exercisers or other people who embody the characteristics you desire.

3 BUILD BETTER HABITS. Most people make the mistake of looking at goals as a point in time some distance away. You're better off if you can think about goals in terms of a series of lifelong changes that you have to make to achieve your desires.

Start by breaking old habits. When Jim Ball went through SmokEnders, the record he kept showed that he lit up after a swim. "What are you going to do after a swim when you can't have a cigarette?" his counselor asked. Ball decided that he would go for a run. On the counselor's instructions, he visualized it. He repeated it in his mind: Go for a run. Go for a run. Go for a run. It wasn't until summer came around again nine months later that he got a chance to see if it worked. By then, he'd been off cigarettes for nearly six months, but he hadn't been in the pool either. And wouldn't you know it--he jumped into the pool, got out and had an urge to smoke. What did he do? "I went for a run. I laughed about the fact that I was probably programmed to want the cigarette," he recalls. "But I did it."

You can do the same with fiscal fitness. Say you and your spouse eat out twice a week, and each meal runs $75. If you decide to spend just $75 a week and invest the rest, you'll save $3,900 in a year. Invest the money in a tax-advantaged account or a mutual fund that returns 8%, and 10 years from now you'll have $67,877. Twenty years from now you'll have $209,609. Thirty years from now when you retire, you'll have $523,611--a half-million dollars just for skipping one restaurant meal a week. That's how you begin to process a goal.

It's important to replace your old habits with new, improved ones. The first time you skip that dinner out, you may find it tough to tell your friends you can't meet them. The second time, it will be easier. By the third week, they may stop asking--unless you offer an alternative. Potluck at home?

4 AUTOMATE WHERE YOU CAN. You don't have to do all the heavy lifting yourself. Most deposits into brokerage, savings and retirement accounts can be scheduled. You decide how much will be deposited, which shares it will buy and when the deposit will be made. You sign on the dotted line and then the transactions just happen. You can schedule your bill payments as well.

5 SET UP REMINDERS. Whenever you're working toward a goal, if you can see it--clearly and often--you'll be less likely to stray. That's why people tack pictures of Britney Spears' abs and Tina Turner's legs on their refrigerator doors. And it works.

6 FOCUS ON TOMORROW. Look forward, not back. If you spend more than you'd planned or eat more than you'd planned, simply start again tomorrow. Reaching your 10-year goal in 11 years is better than never reaching it.

Focusing on the positive helps as well. Nobel-prizewinning economist Daniel Kahneman and his colleagues conducted an experiment in which they asked one group of subjects to submerge their hands in ice water at 14C for 60 seconds and a second group to submerge their hands for 90 seconds; during the first 60 seconds the water was 14C, but during the last 30 seconds it was warmed one degree. Although the second group of subjects had their hands in the icy water for a longer period, they remembered it as a less painful experience because it ended on an upswing. It works the same way with money.

Attaching numbers to your goals

Once you know what you want--and you'll know after going through the above steps--it's time to figure out how much those things will cost. Say you want to retire in Northern California. Only when you know what it will cost to settle in San Francisco can you determine how much of that cost your existing nest egg and projected Social Security benefits are likely to cover--and determine how much of a gap remains. Then you can figure out whether you'll be able to cover it by investing, say, $400 a month at a 7% return or whether it'll take $500 a month at a 9% return. For each goal, you need to run a separate analysis. Once you know the total you need to sock away, you can keep it in any combination of accounts you like.

There are plenty of calculators on the Web that can help you figure out how much money you need for just about any goal. Try Moneyville at Or Google it. You'll see. But some people still prefer to work it out with pencil and paper. The worksheet at right is for you.