Saving is a financial goal as old as time itself. When we were kids, our parents would always encourage us to save in order to buy our bikes. Today, we face the same practice, saving to buy a home, a car, or for retirement.
Financial goals simply represent the financial priorities that are most important to us. These priorities may be long-term or short-term and may involve large sums of money.
Therefore, it is important that you learn the art of financial goal setting in order to liberate yourself from financial stress.
What are Financial Goals
These are financial priorities that you hope to achieve over a set period of time. They can be in terms of savings, investment, or spending targets. If you are not working to achieve anything specific over a certain period of time, there is a high possibility that you could be spending more than you are earning. If you do not have a financial plan, chances are when you have an emergency, you will fall short of the amount that you need.
Additionally, having a solid financial goal helps you avoid some chaotic behaviors, such as getting stuck in a vicious cycle of relying on your credit cards. This leaves you extremely vulnerable than you may think and may hamper your ability to handle major risks in life.
Financial goal planning can be anything and extends to everything! Assuming that you are in college, your plan a short-term goal like saving for a new pair of shoes, or even go for something challenging such as planning to buy a car immediately you are done with school.
A person with a small growing family has different financial goals. Usually, they plan for the longer term where they could plan to stop renting and get their own home.
In short, your financial goal setting will largely be dictated by your environment or stage in life. However, you have to be very intentional about your finances.
Before setting your financial goals…
Most people long for financial literacy and financial freedom and therefore, they will jump at any financial advice that comes their way. It is understandable why but you if you are doing that, you should stop.
Before setting any financial goal, it is important that you first understand what you need and want. If you can be able to differentiate between what you need and what you may want, then you can begin your journey to financial freedom.
Financial planning gives you an opportunity to formally scrutinize your goals and update them accordingly. The plan could be annual, monthly, semi-annual, or even weekly. The plan allows you to review your goals based on your previous plan and see where the deviations, or progress is coming in.
So, what do you want? Is it short-term? Long term? Or mid-term.
Short-term Financial Goals
This is a good starting point towards financial freedom. Setting short-term financial goals helps you get the confidence that you can set and achieve long-term goals. Consider short-term financial goals as the baby steps towards a bigger financial foundation.
Start by setting up a budget. It is the fundamental step towards having a solid plan. Having a budget will help you eventually create a sizeable emergency fund in a year. This is where you start.
Mid-term Financial Goals
Once you have your budget (remember, it has to be realistic), an emergency fund and may be paid off some of your debts. Good work, you are making progress. It is time to start working on your mid-term goals. These goals are the mid-link between short-term goals and long-term goals.
Long term goals
These are the biggest financial goal setting for an individual. They usually involve large sums of money. It could be saving for retirement. The rule of the thumb when it comes to long-term financial planning is to have at least 10% to 15% of every paycheck going in a tax-advantaged retirement account. Whatever you do, make sure that you are saving enough.
The Six Steps To Setting Financial Goals
Here are the six steps to setting good financial goals;
- Figure out what you need; is it for the long term? Short-term or mid-term. From the practical perspective to the whimsical and distant perspective, you need to analyze everything and anything. Do not leave anything unturned.
- Sort out what you can. Right now, make sure that you sort out what you can. Create a realistic budget and stick to it. You need to figure out what’s within your reach and sort it out. This will help you determine your short, mid, and long-term financial plans.
- Make your goals SMART. Yes, it is the old formula and it might sound a bit cliche, but it works every time. Your plans, whether short, mid or long term must be Specific, Measurable, Achievable, and Accurate, they must also be Relevant and Timely.
- Watch your spending habits. Be a smart shopper and a smart spender. But this has to start from creating a budget. You must get a strong handle on what’s coming in and what is actually going out.
- Set up your emergency fund. After creating your tough, realistic, and water-tight budget, you should have some dollars left that you can squeeze to channel it into your emergency savings account. Unexpected emergencies will ruin your financial ambitions if not well planned for.
- Monitor your progress. This is important. Review your progress for a certain period of time to make sure that you hitting certain benchmarks. If you are not, check where you may be going wrong.
One thing is important if you want to achieve a sound financial plan. A budget! This is a powerful tool that will help you hit the ground running towards financial freedom.