If you want to buy a new car or climb Mt. Everest or retire to a yacht, there’s one sure way to not get there.
Wing it. Don’t have a plan or set goals. Count on luck or a guardian financial angel to get you through.
OK, we’re joking. Good luck with trying to wing it.
“If you don’t know where you are going, you will probably end up somewhere else,” famed economist Lawrence J. Peter said.
Reaching your financial goals takes planning. You can do that on your own or get help from a certified counselor. Whichever you choose, you need a SMART (Specific, Measurable, Achievable, Relevant and Timely) strategy.
It can be done. Here’s how.
What Are Financial Goals?
Remember the saying, “I’m just waiting for my ship to come in,”? Financial goals are like little ships. They are savings, investment or spending targets you hope to achieve in a set amount of time.
The stage of life you’re in usually determines what type of goal you wish to achieve. For instance, high school students aren’t too worried about having enough retirement income. They have short-term goals, like making enough money to buy a pair of Air Jordan sneakers or a used car.
A person with a growing family would have more long-term goals, like buying a house or saving money for their kids’ college education.
Types of Financial Goals
Setting a specific goal largely depends on when you need to reap its benefits. Those time frames are pretty simple.
- Short-term goals. These can be reached within a year and are for relatively smaller things, like buying a computer or TV or paying for a vacation or setting up an emergency fund.
- Mid-term goals. These can be done short-term but often take up to five years. Examples would be paying off credit cards or loans and saving for down payment on a house.
- Long-term goals. These take much longer than five years to reach. They are things like paying off a mortgage or student loans and funding a retirement plan.
Examples of Financial Goals
Consider sticking to these 10 goals to help relieve yourself from financial difficulties.
1. Make a budget
You can set the greatest goals possible, but it’s pointless if it’s not grounded in reality. Listing your expenses and income gives you a clear grasp of what you have to work with. A credit counselor can show youhow to create a budgetand come up with a reasonable plan to achieve your goals.
2. Pay off credit card debt
Credit cards are to financial health what icebergs were to the Titanic. The interest rates can cost hundreds or thousands of dollars a year. Adebt consolidation planoften provides a way out of thecredit card debt muck. A counselor can explain how such a plan works and help you decide if it’s right for you.
» Learn More: How Much is Too Much Credit Card Debt?
3. Start an emergency fund
Financial disasters like losing your job or a medical crisis always lurk. You need enough money in anemergency fundto cover three months of your regular living expenses, like housing, food and transportation.
4. Save for retirement
You want to live out your golden years in comfort, not poverty. That means you need tofigure out how much you’ll needand set aside cash every month to grow an investment portfolio. It’s not as exciting as buying a new car now, but it’s better than eating a can of cold beans when you’re 85.
5. Save for college
Goingto college costs an average of $35,551 a year in 2020. That’s pricey, but it’s often worth it if you get a meaningful degree. College graduates typically earn 66% more than people with only high-school diplomas. A counselor can help youunderstand how to afford college.
» Learn More: How to Save Money for College Tuition
» Learn More: Budgeting Tips for Young Adults
6. Save for a down payment on a home
The real estate market fluctuates, but owning a home is almost always a good long-term investment. Down payment requirements vary, but 20% of the total cost is a good goal and will spare you having to pay mortgage insurance.
» Learn More: Pay Off Debt or Save for a House?
7. Improve your credit score
Whether it’s buying a house, a car or anything that requires a loan, the better yourcreditscore, the less you’ll have to pay in interest. Agood credit scorecan save you thousands of dollars on a major purchase.
8. Pay off student loans
The average federal student loan debt was $37,358 in 2022. The Biden Administration attempted to forgive much of that, but it’s unclear whether student debt reliefwill be approved by the courts. In the meantime, refinancing orstudent loan consolidationare money-saving options on certain loans.
9. Start a business
Starting a business is a tough, but ultimately fulfilling endeavor. Who doesn’t want to be the boss? You will need to create a business plan, find seed money, and stick to a monthly budget. Starting a business is meant to make money, not hemorrhage your own.
» Learn More: Steps to a Successful Business
10. Do something good for yourself
Let’s face it, most goals aren’t fun to talk about. It’s good to have one that feels like a reward, like buying a boat or 80-inch TV or a cruise. Striving for something fun also reinforces the diligence and self-discipline required to reach all those other goals.
How To Set Financial Goals
Whether you do it yourself or rely on professional help, here are six steps to setting financial goals.
- Figure out what matters to you. Consider everything, from the practical and pressing to the whimsical and distant on the table.
- Sort out what can be quickly achieved, what will take a bit of time and what will be a long-term project.
- Apply a SMART strategy. That stands for Specific, Measurable, Achievable, Relevant and Timely.
- Create a realistic budget. Get a strong handle on what’s coming in and what’s going out, then work it to address your goals. Use your budget to plug leaks in your financial ship.
- Hopefully, your tough, realistic, water-tight budget will show at least a handful of leftover dollars. Whatever that amount is, have it automatically directed into a separate account designed to address the first couple of things on your list of priorities.
- Monitor your progress. Make sure what you’re hitting your benchmarks. If you’re not, pause and evaluate what’s going wrong.
How To Achieve Your Financial Goals
Make a plan that prioritizes your goals. When you examine them, you’ll discover some are broad and far-reaching and others are narrower. That lets you separate them into one of three categories.
- Short-term financial goals take under one year to achieve. Examples may include taking a vacation, buying a new refrigerator or paying off a specific debt.
- Mid-term financial goals can’t be achieved right away but shouldn’t take too many years to accomplish. Examples may include purchasing a car, finishing a degree or certification, or paying off your credit card debts.
- Long-term financial goals (over five years) may take several years to accomplish and, as a result, require longer commitments and often more money. Examples might include buying or paying off a home, saving for a child’s college education or a comfortable retirement.
This process involves deciding what goals you intend to reach, estimating how much money and resources will be needed, and planning how long you expect it will take to achieve the goals.
Develop a Goal Chart
Developing a financial goals chart is a good way to begin this process. Here are the five steps you should follow to set up your goal chart:
- Write down one personal financial goal. It should be specific, measurable, action-oriented, realistic and have a timeline
- Decide if your goal is short-term, mid-term, or long-term, and create a timeline for that goal. This may change at any time based on your situation.
- Determine how much money you need to reach your goal and separate that amount by the month and/or year.
- Think of all the ways you can reach that goal. Include saving,cutting expenses,earning extra money, or finding additional resources.
- Decide which is the best combination of ways to reach your goal and write them down.
All of that might sound daunting, so it’s best to set incremental goals. Prioritize, then achieve. After accomplishing some of the easier goals, you gain confidence in your decision making. That should motivate you to achieve the more difficult targets that require more time and discipline.
Why You Should Set Financial Goals
Without goals, your journey to financial security is likely to meander.
“For anybody who walks through the door, if they don’t have some financial goals, if they have failed to plan, it’s like the saying goes, they are probably planning to fail,’’ said Allen Wohlwend, a financial planner in St. Petersburg, Fla. “The ones who look ahead and have some concept about what they’re looking to do with their money, the ones who put a plan into motion and establish some good habits, those people are golden.”
Accordingly, there are golden rules. The rules aren’t iron-clad, though, because the process involves some guesswork.
Who knows what’s ahead in 30 years? Heck, who knows what’s ahead next week?
The economy has been on a rollercoaster. The smartest, best-prepared people make the best guesses possible.
“What if circ*mstances change?” Wohlwend said. “It’s not just the number that matters in setting your financial goals. It’s the process itself. It’s establishing good habits. If you adhere to consistent saving patterns, you’ve set yourself up for success.’’
» Learn More: How Much Should You Save From Each Paycheck?
Goal Setting Tips and Resources
There aregoal-tracking appsto keep you up to date. If you’re not a techie fan, old-fashioned methods can help. Stick a picture on your refrigerator door of yourself at the beach or some other nice spot and imagine that’s your life in retirement if you achieve your goal.
If you get discouraged or need more hands-on help, there’s another option.
Get Help Setting Financial Goals
That high school kid who wants a new pair of sneakers doesn’t need a financial counselor. Figuring out how to pay for a house or retire early is obviously more complicated.
You can do it yourself, though millions of people have gotten help at nonprofits likeInCharge Debt Solutionsand other counseling services.
They can act as your guardian financial angels, advising you ondebt relief programsand other budgeting and saving strategies.
Whether you seek help or go it alone, remember one thing. If you want your ship to come in, it needs to know where it’s going.
