As we near the eve of the New Year, many people’s minds start to wander towards setting some New Year’s Resolutions. You plan to save a little more out of your paycheck or lose a few of the pounds you gained the last few weeks. This might be the year to quit smoking or drink less. Or perhaps you just want to work less, enjoy more life and spend more time with family and friends. Whatever the case may be, the key to keeping your New Year’s Resolution lies in the basics of goal setting.

When it comes to goals, it pays to be SMART.

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If you talked to me three or four years ago and asked me about my approach to personal finance, I would’ve told you that you should always pick the mathematically optimal path and try to adhere to it as much as possible. I was fortunate enough to have the discipline, a credit to my parents, to almost always be able to follow what I believed was the optimal path. I didn’t have any credit card debt, I contributed as much as I could to my Roth IRA and my 401(k)’s, and I worked hard at my job.

However, in the last few years, I’ve come to recognize that it isn’t the path that you take that’s important, but how quickly you can achieve your goals. The fastest way for you to reach your goals may not come from going the best way. When climbing a mountain, a seasoned climber can scale rock faces while the novice sticks to the paths. The optimal path is by climbing the rocky walls, but a novice might make it up a few handholds before they gave up.

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Last December, we set regular and stretch goals for the 2007 and promised to review them mid-year. Unfortunately, since it was the first time we’d set goals for ourselves, we (mostly I) completely forgot about them and didn’t think about it until I was going to pen a post on goals for 2008! Well, before we visit the 2008 regular and stretch goals, how did we do on the 2007 ones?

Regular Goals

• Maximize both my and my fiancée’s contribution to our 401(k) plans. Achieved! This is something we’ve been doing ever since we started working so it wasn’t difficult to achieve, but having a few low hanging fruit gets the goal achievement train rolling!
• Maximize both my and my fiancée’s contribution to our Roth IRAs. Partially Achieved! Again, another thing we’ve been doing since we’ve been pulling regular checks, unfortunately I can no longer contribute to a Roth IRA so only partial success can be claimed on this. Next year, once we’re married, neither one of us can contribute to a Roth.
• Save at least 20% of our incomes and put it in a Vanguard Target Retirement fund. Achieved! While achieved, I think putting it on automatic would be easier than our current strategy of contributing every a few months, that will be for next year.
• Generate more passive income than what I earned actively in the first year of my full time job. Achieved! Between the website, balance transfer arbitrages, interest from stock investments and high yield bank accounts, I’m happy to claim victory on this one.
• Donate more to charity in 2007 than we did in 2006 (~$2,000). Achieved! Two incomes, no kids, affords us the luxury of supporting charities (instead of children) and this year we were able to do that by donating more than we did in 2006.

Stretch Goals

• Generate more “passive” income than what I earned actively from my full time job. Achieved! It’s been a great 2007, hopefully 2008 will be strong as well. I’ve begun working with online PPC advertising like Adwords and YSM to diversify my income (hence passive in quotes, since it’s not truly passive), there’s a tremendous amount of information out there and the field is truly wide open for those willing to work hard.
• Research all the options and then open a 529 plan. Partially Achieved. I opened a Maryland 529 but haven’t actually contributed to it.
• Increase total net worth by 25%. Achieved! I’m not really sure how valuable a metric net worth really is, so it might not make the cut as a barometer for performance next year. 25% isn’t that much when you’re in your 20s.
• Buy an investment/rental property. Not achieved. The real estate climate right now is simply too treacherous for a newbie to jump in, I think this upcoming year will provide some good opportunities but I’d rather bide my time and continue to learn vicariously for a good opportunity to come along.
• Donate $5,000 to charitable organizations in 2007. Not achieved. This year we were able to contribute a significant amount to a number of charities we have (and haven’t) supported in the past. They were the a DonorsChoose.org project, The National Zoo, Make A Wish Foundation, Conservation Fund, One Laptop Per Child, National Hemophilia Foundation, Oxfam International, Livestrong Foundation, Smithsonian Institution, Maryland Food Bank, Operation Smile, and the St. Jude Children’s Research Hospital. We were a few hundred dollars short of our stretch goal and I blame that in part to poor planning, we should’ve had a better idea of what we would like to accomplish instead of just picking a few charities we knew of and whose causes we believed in. Next year, I think we’ll want to donate some of our time as well, not just money.
• Start a scholarship in both my high school and my fiancée’s high school. Not achieved. I contacted my former high school in the spring time to see if they were interested and they said they’d call me back, no call ever came and I completely forgot about it. I think this year we will put this one back on the list and I’ll select a high school in the area I’m in or simply donate money to the elementary school that is right next door. My fiancée didn’t have the opportunity to try this at her former high school.

In the next few days I’ll be putting some thoughts as to what our 2008 regular and stretch goals. If you want to give any input, whether you have goal ideas I’m totally missing and that I should think about, please share! I’m always looking for new ideas.