There’s not much sense in setting financial goals you can’t stick with.
Unfortunately, most Americans do not set goals around their finances. This is a shame, especially considering that more than half of American adults are struggling to recover financially in the wake of the Coronavirus pandemic.
The key is to understand your finances and get really honest about what you want to achieve. Do that, and you can go in any direction you wish.
Here’s everything you need to know about setting financial goals.
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What Are Your Financial Goals?
Setting a budget and embarking on a financial journey is a personal thing. Only you can decide what you want to achieve and what you want your money to do for you.
All this to say, take some time to write your goals down or explore your options. Ask yourself, “What do I truly want from setting financial goals? What do I hope to obtain?”
Popular financial goals include:
- Paying off debt
- Saving for retirement
- Saving for a college education for your children
- Building a savings
- Paying off your mortgage
And more. The point is, financial goals vary based on your individual wants and interests. Think about the type of lifestyle you want you live and what type of money you need to achieve that goal first. This is beginning with the end in mind.
Establish an Emergency Fund
If you’re serious about personal finance, the first thing you should do is build an emergency fund. This rainy day budget is there in case you need it. Think of it as an insurance policy for when life hands us expenses we didn’t ask for or anticipate.
It’s important that you set an emergency fund first. Without one, your goals will be like a ticking time bomb. The minute circumstances change—and they will—you’ll be forced to deal with the financial burden then. Better to anticipate this happening now and be prepared for it.
In fact, this is an important component of financial goals you need to internalize. Long-term planning always outweighs short-term efforts. You’ll increase your likelihood of success by playing the long game.
Some popular financial experts will say $1,000 is enough to get started. Others recommend that you save enough for 3 to 6 months of living expenses before taking other steps. The latter scenario definitely mitigates risk and can help you in the event of a true catastrophe—losing a job, getting injured or sick and not being able to work, etc.
How much money you’ll need depends on where you live, if you’re single or married, and other factors. Do the research and decide what’s right for you.
Set a Budget
The most important component of achieving your financial goals is setting a budget. Without a clear number in mind of how much money you’re spending each month, you’ll never achieve any meaningful financial success.
Make a list or an excel spreadsheet of all your expenses. Rent, mortgages, insurance, groceries, car payments, gasoline, and even entertainment should all be on this list. As a starting point, figure out how much you spent last month.
Later, you’ll revisit this step and work backward to decide how much you’d like to spend each month. Cutting out the extraneous expenses can help you with several of the other action items on this list.
Here are a few helpful tips for budgeting to get you started.
Pay Yourself First
Budgeting can feel like a burden, if not a downright chore. Especially if you’ve never built or stuck to a budget before.
Amazingly, only about 32 percent of Americans keep a budget or even know how much they spend. One reason they spend so much is that they don’t see the value in saving their hard-earned money. Paying yourself first can turn this on its head.
Design your budget in tiers. In the first tier, put all the “expenses” you have that are actually you paying yourself (e.g., putting money into an emergency fund or saving any of your money). Also any other expenses you consider investments, such as continuing education courses could go here, too.
When you pay yourself first, you’re less likely to splurge on stuff you don’t need. Seeing that your money’s working for you is a nice psychological trick that can help you stick to your budget.
Don’t Forget the Smaller Things
Budgeting can feel ruthless, but it’s a necessary evil. If there’s one key to how to set a budget, it’s that you need to get extremely honest with yourself to get results.
This might take some practice or some quiet space. Maybe it’s best if you set the budget on your own, away from whoever you share expenses with. If you’re nervous that you’ll find you have bad spending habits, this might be a good way to get you started.
Be sure to list every expense. Streaming services, utility bills, pet food, and other seemingly “small” expenses need to go on the list. The number one key to success in budgeting is learning where your money is going. Once you know that, you can make it work for you.
Consider Paying off Debts
There are some great credit cards out there. Many offer awesome benefits like cashback rewards and free points you can use towards flights. But if you’re setting financial goals, you need to get clear about your plan for credit cards going forward.
If you’re trying to get your finances straight, there’s at least a small chance you have credit card debt.
Is one of your first goals to pay it off? Do you want to steer clear of credit cards in the future? Or would you like to use a credit card with perks responsibly and pay it off at the end of each month?
Only you can answer these questions. For now, it’s probably a good idea to pay off as much debt as you can early on. You might be shocked at the number of expenses you’re paying each month in the form of credit card interest or minimum payments.
Paying down or paying off debts lowers your monthly expenses, freeing you up to build your savings faster.
It might take a while, but the more aggressive you are in paying off your cards, the better. In the meantime, it might not hurt to look into a balance transfer to see if you can get your interest waived.
Consider Your Credit Score
In America, credit matters. You need good credit to get things like a mortgage or a good rate on a car. You should factor in your credit score to any financial goals you set.
Getting debt-free is a great goal to have, but getting rid of your credit cards is more complicated. Canceling your cards can actually lower your score, especially if you’ve got cards that you’ve had for a decade or more.
As a result of the COVID-19 Pandemic, it’s currently free to check your credit scores each month. This can be useful information that informs your financial goals. Typically, you’re only able to access this information for free once a year.
Brainstorm Ways to Boost Your Income
At the end of the day, your personal finance plan should be fairly simple. You should be bringing in more money than you spend each month. And each expense you do have should be identified so you know where your money is going.
The money “in” side of the equation is interesting to consider. Just like with your expenses, there are things you can do to change it. Setting aggressive financial goals is possible if you’re willing to make some changes.
One thing to consider? Additional ways to boost your income. One recent study found that 49 percent of Americans under the age of 35 have a side hustle. A ten to twenty hour per week part-time job can help you pay off debt or build up your savings faster—whichever is your goal.
You may even consider starting your own small business. Even though you’re trying to pay off debt, a personal cash loan might be a good option for you if you know you can make extra money and pay it back.
Again, it comes down to what you want out of this. Could you sacrifice your lifestyle for a year or two to build up wealth and pay off debt? Or would you rather do it over time slowly so you can keep living how you live now?
Create SMART Financial Goals
SMART goals are a proven system for achieving outcomes, including financial goals. They’re relatively easy to write and a good exercise for determining what you really want.
‘SMART’ stands for Specific, Measurable, Actionable, Realistic, and Time-Sensitive.
An example of a SMART financial goal might look like this:
I will build an emergency fund of $2000 in 2 months by saving approximately $250 per week out of my paycheck.
See how helpful this framing device could be? You identify how you’re going to get there, what it’s going to take, and if your goal is actually attainable in that time frame.
If one of the letters is most important, it’s “realistic.” Ground your financial goals in actions you can feasibly take so you feel empowered to carry them out.
Don’t Compare Yourself to Others
Personal finance is not a race, nor is it a game of seeing what other people are doing. If you want to be successful, you need to focus on your own goals and circumstances.
The beauty of setting financial goals is they can always change. In fact, they should as you go along.
Sticking to your goals usually results in more income, less debt, and more control over where your money is going. You might be surprised after a few months when you need to set different goals because you reached yours so fast.
That said, don’t fall for the trap of comparing yourself to other people. It’s easy in this social-media-driven world to do this. But you’ll just wind up shooting yourself in the foot financially.
Your salary and your financial situation can always change. It takes hard work, not jealousy or pitting yourself against others in your mind, to get there.
Stay the Course
It’s worth reiterating because it’s that important: financial goals take time. It could take five or ten years to pay off your home early. But if you’re paying off a twenty or thirty-year mortgage, isn’t that still an awesome goal worth achieving?
There’s a degree of automating or relinquishing control in achieving financial goals. If you constantly consider changing the plan, you’ll only get frustrated and give up. Set a plan, understand your finances, and stay the course—your patience will eventually be rewarded.
Plan for Retirement
It’s a scary stat, but 64 percent of Americans (of all ages) aren’t on the path towards retirement. They’re either not putting away enough money or not making enough in the first place to plan ahead.
When you want to retire and how you wish to live after you’re done working is worth consideration. Even if you’re in your twenties or thirties, there’s value in knowing where you want to go.
For the record, this doesn’t mean you have to budget now to put away money for retirement. Maybe you have other goals you want to achieve first. But it can’t hurt charting a path for what it’ll be like when you do eventually stop working.
It might also be worth sitting down with your company’s financial advisor to understand where you’re at. Many businesses offer this service as part of your benefits package, so definitely take advantage if you can.
Setting Financial Goals
Setting financial goals takes time and discipline. But if you’re honest about your finances and set realistic, meaningful goals, you can achieve any outcome you wish.
It starts with setting a budget and seeing where your money goes. From there, take the time to consider what you want to achieve and how much money you have coming in each month. If it’s worth considering a second job or side hustle, weigh the pros and cons.
Learn more about our personal loan options or check out our financial resources center to figure out what goals make sense for you.