Setting financial goals will help you create a big picture of your current financial situation and the path you want to take to become financially secured. You will learn how to prioritize your expenses, savings, and where your earnings should go. You will also have the opportunity to evaluate which things are important to you.
Financial goals are your targeted objectives that require funds. These goals can be short-term or long-term. This will determine how you are going to spend and save you money. This can be overwhelming, especially for the first-timers who will just set their financial goals.
Here are some simple tips on how to set your financial goals.
You may start by visualizing and listing down where you want to be financially in the future, and the reason WHY you are striving to reach those goals.
For example, you want to earn $15,000 monthly working on your startup because you want to be your own boss and enjoy life.
No matter how impossible your goals may sound, you must list down all of those. It is also important that you include your reasons for your WHYs as this will be your compass if you get lost along the way because of the obstacles you are going to encounter.
Here are some good financial goals that can be your priority:
1. Spend less than your income.
2. Grow your emergency fund.
3. Pay off your debts, completely.
4. Save for your retirement.
5. Save for your children’s education.
6. Keep multiple investment accounts.
7. Start your own business.
Once you have listed down your financial goals, the next important step that you need to do is to know how much money you have. This will help you decide which goals in your list will be under your short-term goal and long-term goal.
Short-term goals and long-term goals may differ depending on the total earnings of a person. For some, saving for a car payment is a long-term goal because it will cost them 2 years of their earnings. However, for some, it will just cost them 6 months.
You can use different tools, apps, or even a pen and paper to help you find out your financial information or net worth. You just need to figure out how much you have or your financial assets by checking your savings account, properties, and other investments. Next, you should assess any of your debts or loans that are outstanding. The total amount of what you have minus the money you owe is your total net worth.
Now that you know your total net worth, let’s proceed with creating your budget plan. Creating a budget is allocating your income to your expenses and savings.
To determine your budget, you need to gather and list down your monthly expenses. This includes utilities, rent, groceries, internet, insurance, gas and transportation, and other personal expenses. Subtract your total expenses from your income. The remaining amount can be allotted for your short-term and long-term financial goals.
If you want to go bigger with your financial goals, go back to your list of expenses and decide which expenses you can cut. For example, you can cut your subscription to Netflix to save money, or instead of dining out every week, make it to once a month.
You can also think of other ways of making extra cash. You can work on a side project or start a freelance work so that you will earn more.
You can also apply the 50/20/30 rule for budgeting. The 50% of your earnings should go for your needs or essential living expenses, 20% should be allocated for your savings and investments, and 30% should go for your wants or for the things that you enjoy but don’t essentially need.
Short-term financial goals are those immediate expenses that you want to achieve in a range from one month to 2 years.
Example: Purchasing of household items, saving for your travel, payment for loans and credits and building your emergency fund.
Long-term financial goals involve more money than your short-term goals. It usually takes 5 years or more to achieve.
Example: Saving for retirement, paying off mortgage, saving for your startup, and saving for your child’s education.
Whether you are setting for your short-term financial goals or long-term financial goals, effective financial goal setting should follow a SMART methodology: Specific, Measurable, Attainable, Realistic, and Time-bound.
Your goals can change as we do not have much control over what will happen to our lives. We may get caught into a sticky situation and we may need to reevaluate our financial goals. Don’t be disheartened if this happens. It’s okay to make changes and update your financial goal strategy. Whatever you do today whether it’s big or small will have a positive impact on achieving your financial goals.
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