Could your goal setting actually be harming your financial future?

The Dark Side of Goal Setting

by Joel Fink


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We are a society of goal setters. We set occupational goals like monthly sales targets, service calls per hour, or number of deliveries per day. We set personal goals like losing 30 pounds in the next six months, paying off our credit cards by year end, or reading a book per month. Goal setting is good, right?

Lisa D. Ordonez, Maurice E. Schweitzer, Adam D. Galinsky, and Max H. Bazerman wrote an article for the Harvard Business School titled "Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting." (See their executive summary and full working paper).

While acknowledging that studies have shown setting specific and challenging goals can powerfully drive behavior and boost performance, they also note that improper goal setting can cause significant harm. The positive impacts of goal setting have been widely studied and prescribed, but the negative impacts of improper goal setting have been mostly ignored.

Some of the potential negative impacts of improper goal setting that they identified are:

  • A narrow focus that neglects non-goal areas
  • A rise in unethical behavior
  • Distorted risk preferences
  • Corrosion of organizational culture
  • Reduced intrinsic motivation

You can see the danger of improper goal setting for certain businesses in news reports about their missteps. For example, take the Wells Fargo unauthorized accounts scandal. The company set such unrealistic new account sales goals that employees, who feared for their jobs if they did not meet the sales goals, set up new accounts for customers without their consent.

So, what lessons can we take for our personal finances from this study about improper goal setting? The first lesson is to take a holistic view when you are dealing with your personal finances. If you focus too much on only one factor, you can unintentionally damage other important parts of your financial health.

Use these guidelines to choose the best plan to pay off your credit card balances.

For example, if you set a goal of building a $5,000 balance in your checking account, but you achieve that goal by allowing your credit card balances to rise, you might be doing more harm than good. Taking a broad, balanced view of your situation is important. Setting a goal to accumulate a $5,000 balance is fine as long as that goal doesn't undermine other important parts of your financial health. Your goals shouldn't cause bad financial behavior, like allowing your credit card debt to soar.

The next lesson we can learn is about motivation. If you feel like you just can't meet all these goals, or your goals are too aggressive, you may be tempted to give up. Perhaps you need to set fewer, more attainable goals. It may even be better to spend your effort right now on developing good financial behaviors. Maybe you should focus on eliminating impulse buys and reducing credit card use, rather than setting goals that you can't meet. It's better to make a few small, positive changes in your finances than to give up because you feel overwhelmed.

Goal setting can be a powerful tool. However, like any powerful tool, you should use it carefully and appropriately. Put some thought into your goals. Make sure your goals are appropriate for your situation, reflect your values, provide positive motivation, and incent good financial behavior.


Joel Fink is a retired CPA and financial services executive living in Dallas, Texas. He enjoys writing articles that help real people with simple ideas to manage their money and improve their lives.

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