Financial goals are plans for your money. They can be long-term or short-term goals. An example of a long-term goal is investing for retirement. Saving $1000 is a short-term goal. Goals provide focus and accountability regardless of how long it may take. If you are not working toward something specific, you likely spend more than you should. Without a plan, you may not have money for unexpected bills or be able to retire when you want to do so.
Benefits of Setting Financial Objectives
There are proven benefits of setting financial goals. Getting specific about what you want and taking action can produce positive changes in your life. It is not sufficient to have good intentions and big dreams. To realize your vision, you need a plan to make it happen.
Establishing goals is crucial for security, stability, and success. When you decide how to manage your money to achieve what you want in life, you start to align your actions and goals. Benefits of setting financial objectives include
- Creating a practical plan for finances
- Choosing appropriate strategies
- Measuring progress
- Knowing your priorities
- Increasing the chance of positive outcomes
- Creating built-in accountability
- Improving your money mindset
- Having confidence and hope in your future
When defined financial goals are included in your plans, you set yourself up to succeed.
Why Are Personal Goals Set Before Financial Goals?
Personal goals benefit your life by creating motivation, focus, and confidence. Do you know where you want to be in a year, five years, or ten years from now? Even if you have not thought ahead that far, setting goals is crucial for professional and personal development.
Often those goals are connected to finances. Big travel plans, getting your Master's degree, and buying a vehicle or home are not without cost. Some ambitions need to be fueled by passion and money, so setting goals for yourself is essential.
When Setting Financial Goals, You Should ...
SMART is a helpful acronym for setting any goal. It stands for Specific, Measurable, Attainable, Relevant, Time-bound. Specify precisely what you wish to achieve. It is impossible to track your progress if you do not have some way to measure whether you are achieving your goals.
Goals that are elusive and distant do more to discourage than motivate. Meaningful goals align with your skills, interest, and who you are. If you question whether they are worth pursuing, it is hard to commit to them. Set a time frame for achieving goals to keep them from remaining on the distant horizon. Save for the future is not a SMART goal and does not have the same impact as the SMART goal of earning $200 more each month by working a side job.
How to Plan for Financial Goals
An adage says those who fail to plan, plan to fail. Look ahead and have an idea of what to do with your money. Consider these goals
- Make a budget
- Pay off credit cards
- Save for emergencies
- Save for retirement
- Live below your means
- Develop income improvement skills
- Improve your credit score
In addition to these goal suggestions everyone should set, others may include
- Saving for college
- Paying off student debt
- Saving for the down payment on a house
Most experts will advise setting a budget and sticking to it. A budget clearly defines the income and fixed expenses a person has. By creating a budget, you know your financial limits. Anyone serious about their financial standards needs to place paying off credit card debt high on the priority list.
The interest on credit card accounts eats up cash flow that could serve other purposes. When paid in full, be conscious of how often they are used. Overuse of credit cards is a poor decision. Some people get caught up in the culture and are deeply in debt. If you do not have the self-discipline you need, there are reputable credit counseling agencies that can help.
***Emergency Fund ***
A top priority should be establishing an emergency fund. The minimum standard is three months of liquidity. It would be better to have money to carry you through six months. Emergency funds are essential in a fragile job market. They are used to pay the mortgage, pay for a hospital stay, fix a surprise vehicle repair, and various other unforeseen expenses.
Some Americans find delayed gratification an elusive concept. Marketing advocates buying and consuming. Saving, especially for retirement, needs to be as attractive as spending money. It provides the capacity to reach long-term goals. Set aside money each month into a retirement portfolio. You will be glad you did down the road.
Living below one's means is a simple concept. When you spend more money than you make, you create debt. Spending less than your income creates an opportunity to save. Do not try to live a lifestyle you cannot afford.
***Money Skills ***
Developing money improvement skills does not necessarily mean getting a college degree. It can be anything to acquire more knowledge and contacts, such as
- Added responsibility or training where you work
- Finding a mentor willing to provide feedback and tips
- Working a part-time job
- Attending workshops or conferences
- Networking in your profession
- Taking classes at a local library
Large payoffs can result from small steps.
***Credit Score ***
When obtaining any loan, such as a mortgage, it is best to qualify for low-interest rates. An excellent credit score qualifies you for lower rates that save you money.
Every person's situation is unique regarding saving money and paying off debt. A plan to alleviate and vanquish debt and save for retirement are two of the top financial goals for adults. The steps above can help set goals, budget, and save.