It’s called personal finance for a reason. Everyone has different ideas for their financial future. Whether you want to break the pay-by-pay cycle or work toward a life of financial freedom, setting financial goals can help you get there.
Financial goals define your goals related to money. For example, retirement is a great financial goal for many. But you can set both short-term and long-term financial goals.
Let’s explore how to set financial goals for your own life.
start with why
On the surface, it may seem like money goals only affect your financial life. But that couldn’t be further from the truth. Our financial situations shape our lives in more ways than we care to admit.
For example, you may want to visit your dream destination for fun. However, you will need money to make that dream come true. Beyond a budget, our financial situation affects our time freedom because greater financial flexibility often gives us the ability to reclaim our time.
As you begin to set money goals, consider your reasons. Take a look at the reasons why you want to achieve a particular money goal. Maybe you want to build an emergency fund for greater financial stability or want to pay down debt.
look where you stand
Before you can start moving in the direction of your financial goals, it is important to determine where you currently are. Some ways to assess your current financial situation include adding up your net worth, reviewing your expenses, and tracking your income.
With a better idea of where you stand, you can focus your efforts on your most pressing money goals. For example, let’s say you have high-interest credit card debt. You may choose to focus your financial efforts on paying that off before you start saving for a down payment on your future home.
When you take a close look at your finances, you may or may not like what you find. Regardless of where you are, be kind to yourself. Instead of sifting through past mistakes, look at how you can change your path for the better.
Choose SMART goals
If you have some big money goals in mind, it’s time to transform them into SMART money goals. A INTELLIGENT The goal is Specific, Measurable, Achievable, Relevant and time-bound.
Let’s say you have a goal of building an emergency fund. Instead of keeping the goal on that broad scale, fixate on the details. For example, you could set a goal to create an emergency fund of $10,000 over the next year, which means you’d need to save $833 per month to reach your goal.
When looking at your big financial plans, find ways to break down larger goals into more actionable steps. Write your financial goals in a place you’ll see regularly, like your phone’s lock screen or your bathroom mirror, to motivate your progress every day. As you go, mark your progress along the way.
make it nice
Not all financial goals are the most striking. For example, saving for retirement is often a decades-long process that can sometimes feel like a drag. It’s easy to let your eyes wander from the prize.
Instead of letting your financial goals become stale, be sure to add some fun rewards along the way. Set clear milestones that come with a reward, like a fun splurge when you’re halfway to your goal.
Work your goals into your budget and leave some room to enjoy the trip.
