Do you feel you’re trying hard to make the right money decisions but never seem to get ahead? Have you been working your butt off but don’t have much to show at the end of the month?
Inflation and recessions are real and can feel like obstacles. Even if the economy isn’t crazy, you may feel like you’re spinning your wheels if you don’t set financial goals.
Setting financial goals is the key to making progress with your money. I’ll explain how to set financial goals step by step.
What is a Financial Goal?
Financial goals are plans to manage your money. They can be short-term, like saving for a trip or a big purchase, or ongoing, like providing for retirement. Having specific financial goals helps you put your money where your goal is.
Financial goals require baby steps. Choosing what to do with your money can feel like choosing what to watch on Netflix. Everyone has an opinion.
Steps to Setting Financial Goals
1. Set Specific Goals
People fail to achieve their goals because they’re too vague. Saying “I want to be better with money,” doesn’t mean anything. Focus it down.
How about tackling your debt? That’s an area to focus on. Let’s break this goal down even more.
2. Make it measurable
So you want to pay off your debt. Choose an exact amount – something you can measure to see if you’ve succeeded.
Even though zero debt should be your goal, it’s best to break it down into smaller chunks. That way, you won’t feel defeated before you start.
Maybe you have $30,000 of debt, but you want to pay off a $15,000 student loan first. That’s a measurable goal.
3. Set a deadline
Procrastination is super tempting if your goals aren’t time sensitive. Benny Lewis says, “There are seven days in a week, and “someday” is not one of them.” Don’t say someday. Make sure your deadline is reasonable but also challenging.
For the student loan case: What is your target date for reaching your goal? To pay off $15,000 over 12 months, you’ll need to repay $1,250 monthly. Is this feasible, but also a challenge? If so, great!
4. Ensure they’re your goals.
It’s time to talk about comparisons for a minute. It’s easy to see what others do and feel like you should. Do all your neighbors have new cars? Is that Instagram girl always on elaborate vacations? Congratulations to them! You don’t have to do the same thing.
We never win when we compare ourselves to others. Set financial goals that work for you. Just because all your friends are taking out second mortgages to renovate their kitchens doesn’t mean you should. Keep your focus and cross your own finish line. Be clear about why you chose your goal.
5. Write your goal down
Do you achieve goals more often if you write them down? Putting pen to paper helps you commit to the task at hand. Write down your goals. Place them on your desk, car, or bathroom mirror. Using your phone’s Notes app, take a screenshot and set it as your wallpaper so it’s the first thing you see when you pick it up. Keeping your goals visible is a great way to stay determined.
5 Common Financial Goals
The amount of “advice” out there is confusing. Choose your big-picture money goals. You can also reach milestones with smaller goals, however. Here are some common financial goals and strategies for making them happen:
1. Establish a budget
It’s one of the top financial goals people set every year, and the foundation for all your other money goals.
Budgets help you manage your money. This plan is for what comes in (your income) and what goes out (your expenses). Instead of wondering where your money went, you tell it where to go. This ensures you’re taking steps toward your goal every month.
Budgeting boosts your finances. If you’re already budgeting, good for you! If not, try EveryDollar.
2. Build up an emergency fund.
Life happens. If you’ve got enough money saved up, you’ll be prepared for money problems that come your way. Car trouble, medical bills, and busted toilets are some of the worst parts of being an adult. When you have an emergency fund, you don’t have to go into debt to cover those moments.
Set a financial goal of $1,000 in savings. If you have debt, knock it out. After that, build up a fully-funded emergency fund within three to six months.
With an emergency fund, you’re ready for those “life happens” moments. Rather than worrying about what might happen next, you’ll have money aside for it.
3. Get out of debt.
If you have debt, start paying it off. All of it. It sounds impossible, especially if you have big numbers staring you in the face. Debt doesn’t move you forward – it holds you back. Money is useless if it goes to payments.
If you want more money for your ambitions, check out Financial Peace University (FPU). You’ll learn how to ditch debt for good.
4. Save for retirement.
Imagine your ideal retirement. Would you like to take your grandkids to Disney every Christmas? Visit a new state with your spouse quarterly? Read every book on your shelf? Find a fun hobby?
Whatever your retirement dreams are, you need suitable retirement investments now to make them a reality. Once you’re debt-free and have an emergency fund, start investing 15% of your household income for retirement. And guess what? Your retirement dreams can be achieved with the money you sent to payments!
5. Spend less and save more.
People often say, “I want to save more” or “I want to spend less,” without thinking about what it means to do those things. But you must be intentional about your money habits.
Stick to a budget, find deals, use coupons, and pay cash. Here’s a big one: Say no to yourself. I’m not saying you shouldn’t have fun. Saving money requires some planning and lifestyle adjusting.
My final tip for saving money is to plan your meals. Americans spend too much on food, but meal planning can help bring that down. Save time and money with this Weekly Meal Planner and Grocery Guide.
An Example of a Financial Goal in Action
Now that we’ve covered the basics of financial goal planning, let’s see how it works in real life.
A while back, my husband and I decided to buy a house. In the past, any extra income went straight to savings. But I knew a down payment would be expensive, so I started researching prices for the kind of house we wanted to see how much we would have to save for a down payment. Saving for a down payment seemed impossible but breaking it down into monthly goals gave us momentum. Making a plan for our money made our dream possible, and it was fun.
Additionally, I kept my spending habits in check. Knowing my money would go towards something I wanted motivated me to spend less. There were some days when all we wanted to do was relax and spend money but finding creative ways to reach our goal faster kept us on track each month.
It also built character. We can always reflect on that time of our marriage and know we accomplished something together. Our connection grew and I became more content in my heart. Benefits like those outweigh the cost of a new house.
Why is Setting Financial Goals Important?
A goal helps you be more future-minded with your money. You’ll see how every decision matters to your overall financial health.
If you don’t have financial goals, it’s not a big deal to buy breakfast and coffee every day. Let’s see how much that costs you. For just one workweek of lattes, you’ll spend $25 – that’s $100 a month! What else can you do with that money?
If you invest $100 monthly for five years, your latte fund could grow to over $8,000 thanks to compound interest. You’re drinking a whole semester of your kids’ college!
Imagine investing $100 a month for 15 years. You could save over $45,000. What if you invest for 30 years? Over $280,000 could be yours. A latte or a quarter million dollars? You guys, I like a good cup of coffee but not that much. Set yourself up for financial security by making small (or large) sacrifices. What you do with your money today will affect your future.
That’s what you need to know about choosing and setting financial goals. As you decide which financial goals to set, think about what’s important to you and decide what you can cut from your budget to achieve those goals. You’ll be surprised what you can live without when you’re determined to reach a financial goal.