The Importance of Setting Financial Goals

By Randy Cass on August 31, 2016

    Posted in: Personal Finance

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    Regardless of your life stage, you have a better chance of reaching your financial goals if you write them down, and have a plan. 

    The first step to achieving any financial goal is to determine your short-term, mid-term, and long-term goals. Some examples of short-term goals include saving enough in an emergency fund, paying off a balance on your credit card or buying a new computer. Mid-term goals can include purchasing or leasing a car, going back to school, or taking a vacation. Long-term goals require the most planning (and often money), and are things like buying a home or retiring with enough money for a comfortable retirement

    Once you have an idea of your financial goals, write them down (I use an excel spreadsheet to keep track of mine)! After you’ve written your goals down its time to estimate how much money you’ll need to achieve each one, and this is where things can get tricky. Figuring out an accurate amount involves discussing your financial goals (with your partner, or a professional, or both) so you can understand what’s really involved in achieving them. Let’s use a car as an example. What kind of car do you want? What kind of car can you afford? Do you plan on purchasing or leasing a car? Will it be new, or will it be used? How much do you want to put down initially (your down payment)? If you choose to lease a car, do you have enough money to make the monthly payments on time, without affecting your other bills? Of course, the answers to these questions will depend on the type of lifestyle you choose to live, as well as when you plan to get a car by. 

    After you’ve set out your goals and know what’s involved in each, the next step is to determine how long you have to save for each goal, and how much you can save. Then, prioritize! When you started setting out your financial goals you may have thought getting a car by years end was realistic, but after going through the rest of your financial goals (and your budget) getting a car may have to wait until sometime in the New Year. Such is life!

    The last step in setting your financial goals is to figure out how much you need (and can) save each month to achieve them. The number you have to save each month in order to reach your financial goals may seem steep, but don’t become victim to sticker shock and get discouraged. Remember, you now have tangible goals to work toward, and nothing is set in stone because life changes. Maybe your situation has changed and you don’t need a car anymore, so saving for retirement is your main priority. Or maybe you want to set up an education fund for your kid(s) – the idea is to revisit your financial goals throughout the year and refine your plan. 

     

    Achieving your financial goals has nothing to do with luck – it’s a matter of setting smart goals and having a good plan to follow. If you find you’re having trouble meeting your financial goals, you may not be putting enough aside, which leaves two options: decide to make more money (and find a way to do so), or, revise your budget to see where you can spend less (your cheese club subscription may be fun, but it’s not a necessity right now). Also, unless you need the cash, try allocating any tax refunds or bonuses you get right to your goals – it’ll boost your progress, and your confidence to achieve your financial goals.

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