How to Set Financial Goals
If you’re looking to make the most of your money, it’s time to set a financial goal. Everyone has dreams of a better tomorrow, and saving money is usually a big part of making your dreams come true. Setting a goal is like setting a budget. You should work towards saving as much money as you can every week/month until you reach your goal, whether it’s buying a new car, saving for retirement, or paying off your student loan debt. Setting a goal for your finances is the best way to turn your money into something of value. Learn how to take control of your money with these personal finance tips.
Why It’s Important to Set Financial Goals
They say the journey matters more than the destination, but that’s not usually the case with money. The sooner you reach your goals the better. Saving is an important step to generating wealth, improving your lifestyle and creating more peace of mind. In contrast, small things like paying too much for groceries and morning to-go coffees can drain your finances over time, while regular expenses like subscriptions, memberships, credit card debt and high interest rates can make it difficult to save and reach financial goals.
Regardless of what you’re looking to achieve with your money, making a plan is the fastest way to get there. That’s why it’s important to set clear goals for your finances. Whether you plan on buying your first car or saving for a rainy day, chances are you’ll be a lot more financially secure once you reach your goal.
Common Financial Goals
A goal can be anything you want it to be, including possessions, once-in-a-lifetime purchases, advancing your career or becoming debt-free. Everyone’s financial goals are different. All that matters is that you get there in the end. Below are a few examples.
Short-Term Financial Goals:
Paying Off Credit Card Debt: This can easily be a long-term goal, depending on how much debt you have, but getting rid of this debt is vital to securing your financial future and building your net worth. Compound interest builds rapidly over time, making it harder to get out of debt. Paying off debt can make it easier to start saving and working towards your other financial goals.
Saving for an Emergency: Everyone should have some money in the bank in case things take a turn for the worst. Financial professionals typically recommend having at least three months of living expenses in the event of a loss of income. This emergency fund can help pay for basic necessities like rent, utilities and other obligations.
Medium to Large Purchases: Financial goals can apply to things that aren’t necessities as well. You might have a very specific item or purchase in mind when setting your goals such as a vacation, special piece of clothing, gaming platform, used car, exercise or recreation equipment. Planning ahead and setting goals for luxury or recreational items can help you enjoy your hard-earned dollars while still being financially responsible.
Improving Your Credit Score: Improving your credit score is another common financial goal. A higher credit score can help lower interest rates on loans, which could save you thousands of dollars over time in interest payments. A higher score can also help you qualify for a mortgage, personal loans, credit cards and other loans.
Not Living Paycheck to Paycheck: If you are living paycheck to paycheck, you don’t have any room in your budget for unexpected expenses. An accident or emergency could put you further into debt. You also might not have extra money for seasonal expenses or special occasions. Living paycheck to paycheck can also lead to increased stress and anxiety. Creating a budget can help you manage your finances and cut back on unnecessary expenses. This can provide some room for unexpected expenses and can help give you more peace of mind.
Long-Term Financial Goals:
Getting Out of Debt: No one wants to be in debt, but most of us go in the red at some point in our lives. Set a goal to get out of debt and reduce your monthly expenses. It can take years to pay off a mortgage, car, business loan or student loans, but a few lifestyle changes can free up room in your budget so you can put more towards your debt payments. Paying more than the minimum can help you pay off the loan faster and save money in interest payments.
Saving for Retirement: It’s best to start saving for retirement sooner rather than later. Consider setting up a traditional or Roth individual retirement account (IRA) to invest and grow your money in a tax-advantaged account. Saving a little bit here and there can go a long way towards securing a comfortable retirement in the future.
Buying a Home: Becoming a homeowner is a dream and goal that many people aspire to, but it can take time to save a down payment and become financially ready for homeownership. However, in the long run, there can be benefits to owning a home. Buying a home or other real estate can help you build equity rather than paying for rent which may go up over time, increasing your housing expense.
How to Get Started
- Choose a Goal
The first step is to choose a realistic goal for your finances. This may be something you’ve had on your mind for a while or a new aspiration. Whatever your goal may be, set a clear benchmark for attaining that goal. Buying a new stereo or TV is self-explanatory, but others can be more elusive. For example, if you want to pay off your debt, make sure you include everything that goes into closing out the loan.
- Take Stock of Your Finances
Create an itemized list of all your expenses every month compared to your income. Every item should go into one of two categories: essential and non-essential. Consider cutting down on purchases that are non-essential, or don’t have a big impact on your happiness or quality of life. Find areas in which you can save on essential items as well, such as getting different quotes on your auto insurance before it renews. Being aware of where your money is coming from and going can help you allocate more resources towards your specific goal.
- Set a Timeline
Once you have an idea of how much you can save every month, it’s time to set a timeline for reaching your goal. For example, if you can save $200 every month and you need $20,000 for a down payment or to get out of debt, it will take just over eight years to reach your goal. If your goal seems too far away, set incremental benchmarks or smaller versions of your goal to track your progress and boost motivation.
- Monitor Your Progress
With a goal and timeline in mind, it’s time to put your budget into action. Keep tabs on your progress along the way. You should have clear benchmarks in place every step of the way, such as putting $200 in your savings account every month. Ent’s Money Insight tool allows users to set goals, visualize Bubble Budgets™ and track spending enabling users to make smart financial decisions.
If you fall behind, don’t scrap your plan. You can still reach your goal. It just might take a little longer than expected. Go back through your progress and readjust your timeline accordingly. Examine what threw you off course to prevent these kinds of mishaps from happening again. Accidents and unforeseen events can put you behind schedule. Moments of weakness can get the better of us as well. We all get cravings and spend more than we should once in a while, so don’t beat yourself up. Get back on track to keep your goal within reach.
There’s always a way to make your goal a reality. Use these tips to help reach your short-term and long-term financial goals.
Use the following savings calculator from Ent to get started.