Setting Financial Goals

Regardless of where you are in life, you should have a set of financial goals. This list should include both short term and long-term financial goals. By setting attainable goals, following through on them, and following your progress are the keys to financial success. By following these simple steps below, you will identify your financial goals and put yourself in the best position to achieve all of them.

Setting goals greatly increases your likelihood of success. A recent study by Northwestern Mutual shows that since the start of the COVIDS-19 pandemic only 35% of Americans rated themselves as “Financially Secure”, and a whopping 20% rated themselves as “not financially secure”!

If you are like most people, you may not know where to even begin the goal-setting process. The goal-setting process can seem daunting at first, especially in today's busy, stressful modern life, but this guide will help you start your journey towards financial freedom. It’s natural to feel overwhelmed as you begin to think about planning and committing to your financial goals and balancing your budget to actually accomplish them.

It is important that you get in the habit of setting financial goals. Invest the time now to determine what goals you want to achieve in the coming year. Here are five tips for creating financial goals you should consider using for yourself to get your finances on the right track.

Step 1: Identify Your Goals and Find Your Why

Visualize where you want to be in the future and set goals that align with your values and will take you where you want to go. Make sure you also include a few immediate actionable goals as you begin to form your plan

The key to setting financial goals is to make a habit of identifying them, writing them down, and tracking them to increase your chances of accomplishing them. I personally set new goals for every year, every month, and I even have daily actionable goals for certain days. This helps me have a crystal-clear idea of what it is I want to achieve and more importantly, what steps can I take to get me closer to my goals.

Getting a clear idea of what your personal financial goals are is the first step towards success. Look at where you are today and ask yourself: Where are you at right now in your life financially? Where do you want to be? What are your dreams and ambitions? Are you making steady progress towards where you ultimately want to be? What steps will you need to take in order to fulfill your dreams? Answering these questions should give you a good place to start creating your financial goals.

It is important to think not just about what you want to do, but also, why you want to do it. By attaching your why reasons to your goals can put them in perspective and anchor your motivations. For example:

  • Save up enough money for a down payment on your dream house.
  • Pay off credit card debt to finally be debt-free and travel the world.
  • Automatically deposit 10% of your income into an investment fund so you can retire when you are ready.

Ideally, you should plan for short-term, mid-term, and long-term financial goals. Some common examples of financial goals are saving for a new home, college tuition, retirement savings, and a rainy-day emergency fund. Once you have identified your goals, the next step is to determine a good estimate for how much money you’ll need for each of them.

If you are married, it is a good idea that you and your spouse both share the same financial goals. Developing your financial plans together and reviewing your progress together on a regular basis ensures both of you are working towards the same goals.

Step 2: Write Them Down

Writing your goals down is a key aspect of the goal-setting process. Keeping track of your goals will be essential in helping you stay focused, motivated, and headed in the right direction. Writing your goals down and tracking them will give you a road map for where you are going and how to get there. When writing your goals, always use positive terms. Focus on what you want to achieve, rather than what you want to avoid.

After you have identified your goals and attached your why’s, the next step is to write them down. This can keep your objectives clear, organized, and trackable. Write your goals out in whatever form best suits you. You can use an app, a spreadsheet, or use a good old notepad. Whatever works best for you. Check-in on your goals list periodically and track your progress. Once you’ve crossed off one goal, move on to the next.

Step 3: Examine Your Current Situation

After giving it some thought, you may have several financial goals in mind or maybe you don’t have specific goals, you just want to save money. That’s OK. But helps to know where you are before you can set a course for where you are going. Looking at where you stand right now can help set you on the right financial path, whether your ambitions are short term, long term, or yet to be decided.

Start by assessing your income, income tax bracket, available budget, and your net worth. Having an initial understanding of these four things will give you a starting point and help you determine your goals and prioritization of those goals.

Review Your Spending Habits

An effective method for setting your financial goals is to reflect on ​what you spent your money on last year. Review your previous year’s credit card statements and bank statements to identify any purchases that you still feel good about and a few purchases that you regret most. This exercise can help illuminate where you spent money last year and help you make better decisions on future purchases. Surprisingly, most people don’t feel good about the money they spent on things, but conversely do feel good about the experiences they purchased.

Step 4: Create a Personal Budget

Once you have reviewed your spending habits and focused on where you spent- or misspent- your money last year, creating your budget for this year should be easy. By keeping tabs on your income and expenses you gain a better understanding of where your money is going. This information also helps you to formulate a plan on how you can save and invest in the future.

Set specific milestones

It’s not enough to just create a budget or financial goal, you also must follow it through! The best way to do this is to set goals for milestones throughout the year so that you have a way to measure how you are progressing towards your financial goals. For example, if your goal is to build up an emergency rainy day fund, figure out how much money you want to have saved in the next six and where you want to be after a full year. Then check-in at each of these points to make sure you are still on track for your goals or if you need to adjust.

Stay organized

One of the most effective ways to maintain your personal finance goals is to monitor your expenses, spending, and taxes throughout the year. You can organize your expenses with easy to use apps such as Mint ​and Level Money or more traditional tools such as Microsoft Excel or even just a good old notebook to create budgets, manage money and pay bills all in one place.

Create a vision

Developing a financial budget and tracking your monthly expenditures is only half of the financial equation. You also want to look at the larger picture and create financial goals that are in line with your long-term needs. Creating a financial vision board is an effective method to visually represent your short-term goals and map out your larger financial goals. All you need is paper, scissors, inspiring pictures, and some glue. You could cut out phrases and pictures that represent your short and long-term financial goals and paste these images onto your paper. After you have created your vision board put it in a place where you will see it every day (a refrigerator door is a great place) and visualize how you will feel when you accomplish that goal. This technique may give you extra motivation to stick to your budget in order to achieve that long-term financial dream.

Step 5: Pay Off Debt

Once you have completed the steps above you are well on your way to achieving your financial dreams. The next step is to work on paying down your debt.

We’ve listed some examples below, and recommend attacking them in this order:

  1. Create a Budget. If you don’t have a budget, make one today. This will help you keep all your other goals on track by preventing overspending and under-saving. We suggest taking the 50/30/20 budgeting approach. Allocate 50% of your income toward needs, 30% towards your wants, and 20% toward savings and debt repayment.
  2. Build an Emergency Rainy Day Fund. A healthy emergency reserve account acts as a safety net during financial emergencies like unexpected medical bills or a job loss. You should save up enough to cover six months of your average expenses.
  3. Save for Retirement. It’s important to start saving as early as possible for your retirement so that you have enough money to enjoy your retirement. Most experts recommend saving 15% of your gross income each year. If your employer offers a 401(k) and matches your contributions, take full advantage of that free money.
  4. Pay off debt. Focus on paying down high-interest debts first, like credit card debt or payday loans. Then, pay down lower-rate debt like auto loans, student loans, or your mortgage.

Use The ‘SMART’ Technique

Consider all the necessary pieces of a plan. It’s not just the end goal, but the steps you’ll take to reach it. The “SMART” technique stands for:

  • Specific
  • Measurable
  • Achievable
  • Realistic
  • Time-bound

Below is a detailed explanation of each of the SMART Technique criteria:

S: Specific

Goals must be specific so that you can recognize when they have been achieved. Your goals can’t be vague in any way, try to phrase them as precisely as possible.

For a goal to fit these criteria, it must answer the following questions:

  • What Do I want to accomplish?
  • Why do I want to accomplish it?
  • When will this goal be achieved?

M: Measurable

Your goals must be measurable, there must be certain criteria that can be used for measuring your progress towards its achievement. By making sure your goal is measurable it will be much easier for you to track your progress.

Measurable goals answer the following questions:

  • By what date?
  • How much money?
  • How will I know when I have accomplished the goal?

A: Achievable

Make sure that your goal is possible to achieve. Give careful thought to ensure that your goal is both realistic and rewarding at the same time.

For a goal to be achievable, it should meet the following criteria:

  • The goal must be realistic when taking all your present constraints and additional factors into account.
  • You must be able to reasonably map out the steps that will achieve your goal.

R: Relevant

Your goal must be relevant to you. Your financial goals must matter and be of some significance to you. When a goal aligns with your dreams, passions, and your interests, it will be relevant.

A relevant goal will allow you to answer “yes” to the following questions:

  • What do you want to accomplish from this goal?
  • Will this goal help you achieve happiness or fulfillment?
  • Does the goal seem worthwhile?
  • Does it seem like the right time to work to achieve this goal?
  • Is the goal in accordance with your other needs and wants?

T: Time-bound

Goals need to be grounded within the bounds of a set time frame.

A goal that is time-bound is generally able to answer questions such as those below:

  • When will you accomplish this goal?
  • What can be done today to get me closer to my goals?
  • What can be done a week from now?
  • What can be done a year from now?

Achieve Your Goals!

Setting goals doesn’t have to feel like a chore. Reward yourself for making progress and completing objectives. Once you’ve tackled high-priority goals like building an emergency fund, saving for retirement, and shrinking debt, you can focus on more exciting goals. These might include making more money, investing, starting a business, or saving for a major purchase like a laptop, car or house.