Setting financial goals is one of the best ways to create a healthier money mindset. The concrete nature of these goals and the progress you make toward them foster a productive outlook that over time can break negative beliefs about money.
There are many different types of financial goals, but some of the most common include saving for a down payment on a house or a car, building an emergency fund, and investing in the stock market for retirement.
- Set Specific Goals
If you’ve ever felt like you’re trying so hard with your money but still feel broke, financial goals can help. Having specific, written money goals will allow you to focus on investing strategies that will help you achieve your desired outcome. The tangible nature of these goals will also make it easier for you to track and measure your progress. It may mean sacrificing an occasional night out or the latest gadget everyone else is charging to their credit cards, but it will ensure that your financial decisions align with your budget and priorities.
There are three types of financial goals: short-term, medium-term and long-term. Short-term goals are those you would hope to reach within a year or less, such as building an emergency fund. These are often the most important because they can help you avoid taking on more debt, pay off bills or deal with a financial emergency in a timely manner.
Medium-term financial goals are things you’d like to accomplish in the next three to five years, such as a down payment on a house or funds for home renovations. These are important to set because they can motivate you to save more and invest wisely to support your longer-term goals.
- Break Down Your Goals
Clearly define your financial goals by making them SMART: Specific, Measurable, Achievable, Relevant and Time-bound. This will help you to determine what steps you need to take to achieve them, and the process of breaking down your goal into milestones will also keep you motivated along the way.
Start with a few short-term goals, such as building an emergency fund or paying down credit card debt. These are often easier to achieve in a relatively short amount of time, which will boost your confidence as you begin to see results. Once you’ve nailed down these objectives, set some medium-term goals. For example, saving for a down payment on a new home or paying off your student loans could be mid-term financial goals that you could work towards over the course of three to five years.
Finally, set some long-term goals such as saving for retirement or purchasing a new car. While these are a bit more challenging to achieve, it’s important that you have these big picture goals in place so that you have something to strive for.
It’s important that your goals are your own and that they resonate with you. Give your goals an exciting name such as “saving for a house” or “getting out of debt.” This will make them feel more personal and help you stay on track.
- Create a Budget
A budget is a way to break down your financial goals and determine how much you should direct toward each one on a monthly basis. This can help you stay on track to reach your short-term financial goals, which may include saving for an emergency fund or paying down debt, while also working towards your long-term financial objectives, such as putting your kids through college or ensuring financial security in retirement.
When creating a budget, start by calculating your fixed and variable expenses. Then, decide whether you want to separate your spending into “must-have” vs. “want-to-have” items, such as a mortgage or car payment, food and entertainment, and other lifestyle costs. Next, set your goals by comparing your total monthly income to the amount you expect to spend on necessities, such as utilities, food, clothing, and transportation.
If your expected expenses are greater than your income, make adjustments to your budget and prioritize your goals accordingly. This may mean cutting back on entertainment, eating out or splurge purchases, and perhaps taking on extra work. Or, it may be as simple as increasing your income through a side gig or finding ways to save money on essentials by shopping around for the best prices. Whatever your goals, remember that they will only be achieved with a solid plan and consistent action, which requires commitment.
- Reward Yourself
There are lots of financial goals that require time and effort to reach. That’s why it’s important to make sure that you reward yourself when you do reach your goal. It can help you maintain motivation and stay focused on your plan. This could be as simple as a treat when you finish your monthly budget or purchasing that new tech gadget you’ve been eyeing on the internet.
Creating an emergency savings fund, saving for retirement and paying off debt are good examples of financial goals that can improve your overall financial health. In addition to those big-picture goals, you may also want to save for things such as a vacation or a home improvement project.
It’s important to remember that setting financial goals will take time and commitment, especially if you are working toward a long-term goal such as retirement or reducing your mortgage. That’s why it’s a good idea to break these goals down into smaller, more manageable ones.
When you set realistic, measurable and achievable money goals, you can get back in control of your finances. By applying a SMART strategy, you can create a budget that shows where the leaks are in your finances and develop an actionable plan to reach those goals. Keeping your goals front and center by putting them in writing and displaying them where you can see them will also encourage you to remain disciplined and motivated to meet those objectives.