Saving money for a purchase is a tale as old as time. Whether you’re an eight-year old wanting a new bike or an adult seeking your first house, we all have experience trying to save up for something that right now, is financially out of reach.
First you need to set a specific financial goal. What is you want to achieve? How long will it take? What are the steps to achieving it?
Once you’ve identified what’s important to you, you need to figure out what is achievable in the short, mid-range and long term; develop a SMART (Specific, Measurable, Achievable, Relevant and Timely) strategy and a tight budget to achieve it; start saving and constantly monitor your success.
That’s a lot, but it’ also achievable. Here’s how.
What Are Financial Goals?
Financial goals are savings, investment or spending targets you hope to achieve over a set period of time. The stage of life you’re in usually determines what type of goals you wish to achieve.
For example, if you’re in college, it may be an easy short-term goal like saving for a new pair of shoes or something more challenging like saving for a car.
On the other hand, a person with a growing family would have a long-term goal of going from renting a home to owning one. Saving for a child’s college education and saving for your own retirement are other popular financial goals.
How To Set And Achieve Financial Goals
Allen Wohlwend, a CPA and certified financial planner in St. Petersburg, Fla., offers a variety of services to his clients. Some need help with their taxes, others want assistance with retirement funds and many need to sort out their overall financial picture.
There’s a common thread – what is your financial goal?
“For anybody who walks through the door, if they don’t have some financial goals, if they have failed to plan, it’s like the saying goes, they are probably planning to fail,’’ Wohlwend said. “The ones who look ahead and have some concept about what they’re looking to do with their money, the ones who put a plan into motion and establish some good habits, those people are golden.’’
Accordingly, there are golden rules. The rules aren’t iron-clad, though. Carl Richards, a certified financial planner in Park City, Utah, calls them “guesses.’’ Who knows what’s ahead in 30 years? For that matter, who knows what’s ahead next week? So, the smartest, best-prepared people make the best guesses possible.
“When I was studying to become a certified financial planner, the so-called (money) ‘number’ was very important,’’ Wohlwend said. “That was the number we’ve got to get to when we’re 65 to provide us with the lifestyle we want for the rest of our lives. That was a long time ago.
“But what if there’s an economic downturn? What if circumstances change? It’s not just the number that matters in setting your financial goals. It’s the process itself. It’s establishing good habits. If you adhere to consistent saving patterns, you’ve set yourself up for success.’’
Examples of Financial Goals
Consider sticking to these 11 financial goals to help relieve yourself from debt:
Make a budget and live by it – Some are skeptical of the budgeting process. “Budgets are focused on debts and expenses and nobody got rich by focusing on their debts,’’ said Ric Edelman, a certified financial planner who is the author of eight books. “You get wealthy by focusing on your assets and your income.’’ But most experts agree that budgets are useful, if only to clearly define the amount of income and fixed expenses in someone’s household. Creating a budget is a great way to know your financial limits.
Pay off credit card debt – Wohlwend said this quality should head the list for anyone serious about establishing financial standards. “The interest charges (on credit card accounts) eat up so much of the cash flow that could be used for other objectives,’’ Wohlwend said. “Once you pay them off, you should be conscious about not using the credit card as much. The whole system enables people to make poor decisions. Once you get caught up in that culture, you don’t even know what’s happening until you add it all up. It’s like, ‘My gosh, I’m $150,000 in debt!’ If you have trouble doing it yourself, try credit consolidation with a reputable nonprofit credit counseling agency.
Saving an emergency fund should be a top priority – Three months of liquidity is a minimum standard. Six months (or more) is better. In a fragile job market, emergency funds are essential. Emergency funds are commonly used to fix a surprise car repair, pay for a hospital stay, the mortgage, and a variety of other unforeseen issues.
Save for retirement – Delayed gratification remains an elusive concept for some Americans. “Everything around us is a push to buy, a push to consume,’’ Annamaria Lusardi, a distinguished professor at George Washington University School of Business said. “We need to make saving — particularly retirement saving — as exciting as consumption. And it is exciting when you consider it gives us the capacity to reach our long-term dreams. People just need to see it that way.’’ Set aside cash each month to grow your retirement portfolio. You’ll thank yourself later.
Live below your means – It’s a simple math equation. If you spend more than you make, there’s debt. If you spend less than your income, there are savings. Don’t try to maintain a lifestyle you can’t afford.
Develop skills to improve your income – It doesn’t necessarily mean a return to college for an additional degree. It might mean taking on additional training or responsibility at your current job. It might mean finding a mentor, who can provide tips and feedback, or working a part-time job. It could also mean attending conferences and workshops, networking in your profession, taking a class at the public library, anything to acquire more contacts and knowledge. Small steps can lead to large payoffs in the future.
Save money for college – A college education that cost $20,000 in 1977, would cost $302,434 in 2020, but a degree stills pays off. According to the U.S. Department of Education, college graduates with a bachelor’s degree typically earn 66% more than those with only a high-school diploma. Over the course of a lifetime, the difference in earnings is $1 million or more. In 2020, an estimated 35% of all job openings will require at least a bachelor’s degree with 30% of job openings requiring an associate degree or some form of college according to the Georgetown study.
Save a down payment for a home – For most people, it’s the most significant purchase and investment. The greater the down payment, the more freedom and flexibility provided for the life of the loan. A 20% down payment is the standard for a good mortgage. Remember having a mortgage is a far more savvy investment than paying rent.
Improve your credit score – In order to get that home — or any other transaction that requires a loan — it’s always helpful to qualify for a lower interest rate. In simple terms, an improved credit score saves you money by qualifying you for lower interest rates.
Paying off your student loans – Debilitating student loan debt is a constant burden for millions of Americans.
The average debt for the 44.7 million Americans with student loan debt is $32,731. Consider refinancing at a better interest rate as a way to pay off your student loans faster. However, if you have governmental loans and choose this option be careful of using private lenders to refinance. Federal loans have certain safeguards like income-based repayment, deferment, and forbearance that are no longer applicable after you refinance with a private lender.
Starting a business – Starting a business is a tough, but ultimately fulfilling endeavor. Who doesn’t want to be the boss? When starting a business, you will need to create a business plan, find seed money, and stick to a monthly budget within your means. Starting a business is meant to make money not hemorrhage your own. Stay resilient!
“The bottom line is everyone can do more — and everyone should do more — to plan for their financial future,’’ said Lusardi, who is one of the world’s foremost experts on debt management. “Make a plan, then follow that plan.’’
Why And How to Set And Achieve Financial Goals
Here are five steps to setting financial goals.
- Figure out what matters to you. Put everything, from the practical and pressing to the whimsical and distant, on the table for inspection and weighing.
- Sort out what’s within reach, what will take a bit of time, and which must be part of a long-term strategy.
- Apply a SMART- goal strategy. That is, make certain your ambitions are Specific, Measurable, Achievable, Relevant, and Timely. SMART.
- Create a realistic budget. Get a strong handle on what’s coming in and what’s going out, then work it to address your goals. Use your budget to plug leaks in your financial ship.With any luck, your tough, realistic, water-tight budget will show at least a handful of leftover dollars.
- Whatever that amount is, have it automatically directed into a separate account designed to address the first couple of things on your list of priorities.
- Monitor your progress. Make sure that you are hitting certain benchmarks. If not, take some time to re-evaluate what went wrong.
How to Achieve Your Financial Goals
The best way to reach your financial goals is by making a plan that prioritizes your goals.
When you examine your own goals, you’ll discover that some are broad and far-reaching, while others are narrow in scope. Your goals can be separated into three categories of time:
Short-term financial goals take under one year to achieve. Examples may include taking a vacation, buying a new refrigerator or paying off a specific debt.
Mid-term financial goals can’t be achieved right away but shouldn’t take too many years to accomplish. Examples may include purchasing a car, finishing a degree or certification, or paying off your debts.
Long-term financial goals (over five years) may take several years to accomplish and, as a result, require longer commitments and often more money. Examples might include buying a home, saving for a child’s college education, or a comfortable retirement.
The goal-setting process involves deciding what goals you intend to reach; estimating the amount of money needed and other resources required; and planning how long you expect to take to reach each of your goals.
Develop A Goal Chart
Developing a financial goals chart is a good way to begin this process. Here are the five steps you should follow to set up your goal chart:
Write down one personal financial goal. It should be specific, measurable, action-oriented, realistic and have a timeline.
Decide if your goal is short-term, mid-term, or long-term, and create a timeline for that goal. This may change at any time based on your situation.
Determine how much money you need to save to reach your goal and separate that amount by the month and/or year.
Think of all ways you can reach that goal. Include saving, cutting expenses, earning extra money, or finding additional resources.
Decide which is the best combination of ways to reach your goal and write them down.
All of that might sound daunting, but it’s best to set incremental goals. Prioritize, then achieve.
After accomplishing some of the easier goals, you gain confidence in your decision making That provides motivation to achieve the more difficult targets that require more time and discipline.
Short-term financial goals tend to be narrow in scope, with a limited time horizon. Short-term goals can include purchasing household furniture, minor home improvements, saving for a car or vacation, or paying for a graduate degree.
Better still, however, short-term goals should include getting the best possible handle on your budget, adjusting your spending habits, eliminating credit card debt, saving a set percentage of your income, and/or establishing your emergency/rainy-day fund.
Short-term goals can include getting serious about doing away with unnecessary spending. Do you need a landline phone? Do you need all those premium cable channels? Do you need to eat out multiple times a week?
Sound daunting already? Then perhaps your key short-term goal is to find a financial counselor or investment adviser who can help you sort your priorities and set a plan.
The tendency to weight financial plans around the near- and long-term goals has been called the “barbell” approach. Some attention must be paid to mid-range goals — those ambitions that will take 3-5 years to pull off.
Again, apply SMART planning. Avoid setting your sights so high that frustration intervenes to short-circuit your ambitions.
Examples of mid-term financial goals include saving enough for a down payment on a house, paying off a hefty student loan, starting a business (or starting a second career), paying for a wedding, stocking your youngster’s prepaid college fund, taking a dream vacation, or even a sabbatical.
A key mid-term goal would be developing multiple-income streams. This doesn’t mean working every weekend at the neighborhood big-box retailer. Instead, it might mean figuring out how to monetize a hobby or starting a side business with an underutilized skill.
Your financial counselor or investment adviser can play a valuable role in guiding your mid-term strategy.
The ultimate long-term financial goal, of course, is funding a comfortable retirement. It’s never too early to get that ball rolling with regular, automatic deposits in tax-advantaged investment accounts. It’s hard to beat dollar-cost-averaged investing over a period of 30 to 40 years.
Other long-term financial goals could include living debt-free, paying off your mortgage; taking a lengthy, once-in-a-lifetime trip; getting your kids through college debt-free; building an estate that would give your youngsters options in life; or leaving a legacy to a favorite nonprofit.
Financial Goal Setting Tips and Resources
There are resources to help everyone stay on course. Financial apps for goal tracking can be helpful. Technology offers a number of goal ticklers, alerts and prompts that can provide a nice road map.
There are also old-fashioned methods. A picture of yourself affixed to the refrigerator door, perhaps simulating that enjoyment of retirement on a secluded beach, might make for a nice visual stimulus.
“If you see it, you believe it,’’ Wohlwend said. “It’s like getting out that old picture of yourself from college, showing what you used to look like. That can help you get motivated to lose those 30 pounds. Whatever the method, if it puts you on the right track, it’s worth it.’’
When the scale finally tips in your favor, it’s only human to seek a reward, such as some chocolate cake. That’s true in the world of finance, too. When you achieve your money goals — either through incremental progress or the retirement finish line — there’s nothing wrong with celebrating a job well done.
Get Help with Setting Financial Goals
Debt is a constant burden for all Americans. Every person’s situation is different when it comes to paying off debt or saving money for retirement. Coming up with a plan to alleviate and ultimately vanquish your debt should be one of the top financial goals in your adult life. One step you can take towards accomplishing this goal is to meet with a certified credit counselor who can help you with setting financial goals, budgeting, and saving.
There is an old saying that “tomorrow never comes.” So, I ask you this: Why not start tackling your debt today?
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