How to set financial goals in 6 steps
Financial goals represent the financial priorities that are important to you. These goals can be long term or short term in nature, they can represent large sums of money or a change in behavior.
How to set financial goals: 6 steps
Setting financial goals is an important step. While goal setting is important, how you set those goals is just as important to ensuring you have a chance to achieve them.
1. Decide what is important
Your financial goals should reflect your financial priorities. What is important to you financially? This should be the foundation of your long term financial goals and should be kept in mind when setting short and medium term goals.
2. Make sure the goal is measurable
For a financial aspiration to be truly a goal, it must be able to be measured. If the goal is to accumulate a certain amount of money for a major purchase or for your children’s college education, how will you know if you’ve reached your goal if there isn’t a number that goes? attached to it?
3. Make sure the goal includes a time frame
In addition to being measurable, a financial goal must include a time frame within which that goal must be achieved.
4. Establish a budget
In order to be able to finance your various financial goals, it is important to establish a budget. This will give you an idea of where your money is going. How much do you need to cover your monthly living expenses? How much is left after your monthly obligations to fund your goals? A budget can also be a tool to adjust your spending if necessary.
5. Monitor your progress
It is a crucial part of the process. It’s important to track your progress toward your financial goals to make sure you’re on track to achieving them.
6. Adjust as needed
Goals can be set with the best intentions of doing what is necessary to achieve them, but life can get in the way. Things can change, other priorities can arise. You may need to adjust your goals or make adjustments to other aspects of your spending to get back on track.
Examples of financial goals
Financial goals can cover a range of financial priorities, from short term goals to longer term goals. Here are some examples of financial goals:
Pay off credit card debt
Reducing credit card debt frees up funds for other financial priorities. Interest on credit card debt can increase your debt amount exponentially in some cases. Getting rid of this debt as soon as possible can free up funds for other financial purposes.
Build an emergency fund
Have a emergency fund can be useful for unforeseen expenses that often arise in life. This fund allows you to cover the cost of most of these expenses without having to go into debt. This can be a big money saver over time. In general, having six months of living expenses on hand is a minimum amount for an emergency fund.
Saving for retirement
Whatever your age, save for retirement should be a priority. In today’s world of fewer pension plans, saving for your retirement is on your shoulders. It’s important to allocate as much as possible to your retirement savings as soon as possible. If you have a retirement plan at work like a 401 (k) At your disposal, this can offer a painless way to do this via deferrals of your salary to each pay period.
Save for college
For those with children, accumulating enough for one or more college studies is a difficult task. Starting early and saving regularly is essential to achieve this goal if you hope to be able to save a substantial amount of money for college.
Living below your means
It involves spending less on a monthly basis than your income can support. There are a number of ways to achieve this, including living in a smaller house, eating less in restaurants, taking less or less expensive vacations, and many more. This goal will be directly linked to the need to establish and monitor a monthly spending goal.
Short term goals
Short-term goals will tend to be very focused and generally involve a time horizon of one to three years. This can include goals like saving for a new car or building an emergency fund.
These are goals that generally have a time horizon of three to ten years. These goals take a little more planning and persistence than short-term goals. The example may include savings for a down payment for a house, pay off your student loan debt, save for a vacation around the world, or save for a wedding.
These are usually goals that will require a substantial amount of money to achieve. Accumulating that amount of money will require a plan and commitment to achieve the goal.
Long term goals
Long-term goals are those that will take a number of years to achieve. Retirement savings is a good example. One of the greatest allies of those who still have a number of years to go is the “miracle” of compound growth. Those who are 20 years or older before retirement can reap huge benefits from the income mix of their retirement benefits. If this retirement savings is invested in tax deferred accounts, the composition has the additional advantage of this tax deferral.
Why should you set financial goals?
Setting financial goals provides a framework for determining what is important to you financially and what is needed to reach those financial milestones. Just getting paid and randomly spending doesn’t allow you to focus on what’s important to you and your family.
Setting financial goals, including the amount needed to reach the goal and a time frame to reach the goal, allows you to establish a plan to achieve that goal. Sticking to your plan for these goals can help shape your attitude towards your finances and provide a level of discipline that will apply to all aspects of your financial life. That alone could be a good financial goal for many of us.