How to set and achieve financial goals
Most of us have an idea of the life we would like to live. Maybe we want to open a business, to pay off a home in our favorite town, or to retire with a legacy to leave future generations.
But without a goal and a strategy for reaching it, these ideas may never become a reality.
The beginning of a new year is a great time to consider your existing financial goals and decide if they still align with your priorities. It may also be a good time to check if you have the right systems and support needed to achieve these goals when you want to.
Whether you have a long list of ambitions for your money, or you’re just getting started, we’ll look at the four steps needed for effective goal-setting and—more importantly—goal-achieving:
Step 1: Know your priorities.
The aim of this step is to recognize your personal values (family, charity, independence, etc.) and decide which financial goals may support your “why.”
You may end up with multiple goals, which is totally fine! With complexities such as compound interest and debt interest rates, it is rarely beneficial to put off funding retirement or paying off student loans until you’ve entirely completed a different goal, even if this is a higher priority.
List out everything you want to accomplish financially, and you can work out the details later.
Step 2: Define the specifics of your goals.
First, categorize your goals by when they can be achieved:
- Short-term goals should take about one year to complete. This could be buying a new computer or saving for your summer vacation.
- Medium-term goals can’t be achieved right away but should take under five years. This could be purchasing a car or paying off student loan debt.
- Long-term goals take over five years to accomplish and require a longer, steady commitment. These might include buying a home or retiring comfortably.
Knowing the timeframe for your goal will help you strategize saving for it.
The biggest mistake we see in financial goal-setting is people not knowing which strategies to use for each goal. Having dollars for short-term goals and priorities in long-term vehicles and keeping long-term dollars in short-term strategies and vehicles can significantly lower your ability to accomplish your financial goals.
Once you know when you want to complete the goal, you need to figure out the actual dollar amount you will need to save or pay down and what you will need to contribute each week or month to reach that milestone.
To do this, write down the goal (i.e. save for a down payment on a house) and then how much money is needed to reach that goal (i.e. $58,000). Pick a date when you want or need to achieve this, and then divide the amount by the number of months or weeks you have left.
Depending on the goal, it may be helpful to use an online calculator, which will help you account for inflation and compound interest when figuring out final totals and monthly payments:
- How much should I be saving for college?
- How much life insurance do I need?
- How much will I need to save for retirement?
Don’t be discouraged if your monthly payment seems too high to manage. The sooner you identify that your goals may be loftier than your current financial state can accommodate, the sooner you can adjust.
Step 3: Create habits that will help you reach your goals.
Once you’ve specified your goals, it’s time to start creating the habits that will help you achieve them.
First, you will need to make a budget that accounts for monthly payments toward your goal. Everyone has a different strategy for budgeting, but the fundamental idea is making sure you have more money coming in than you have going out.
To make your budget, calculate how much you have in income each month, and then determine how much you’re spending on bills, reoccurring expenses, personal spending, and savings. Don’t forget to include how much you’ve decided to contribute to each of your goals!
You can use budgeting apps or a receipt tracking system to make sure you’re sticking to your budget each month and not falling behind.
One of the best ways to stick to your financial goals is to keep them top-of-mind. If you’re making a big purchase, take 30-60 seconds to cautiously work through if that item is in alignment with your long-term goals and priorities or if it’s just a short-term want.
Next, create a strategy for how you will complete the steps toward your goal. You may set up automatic transfers to your savings account, put your loan payment on autopay or set a reminder in your calendar to contribute to your goal each month—just as long as you have a strategy that makes it easy to stick to your commitment.
You should also create a system for tracking your progress with a manual or digital chart that will keep you motivated.
Step 4: Monitor your success.
The last and most important step is to monitor your success. A great way to do this is to establish time to meet with a financial professional or accountability partner to help you realign with your goals or change them if necessary.
Having something or someone holding you accountable always seems to be something that helps people achieve goals. A financial professional can help by providing that accountability throughout the process.
Finally, don’t be alarmed if your goals do change over time. Starting with a strategy will make these shifts in priorities more manageable when they come.
Examples of Financial Goals:
- Fund retirement. No matter what stage of life you’re in, this is a great goal to start with. As more people want to retire early and life expectancy increases, the need for good retirement funding strategies has never been greater!
- Develop an emergency fund. Did you know 44% of American adults could not cover an emergency expense of $400 or would cover it by selling something or borrowing money?2 Developing a two- to six-month emergency fund can help protect you financially from unexpected circumstances.
- Save for a house down payment. Depending on your priorities, this may be a medium- or long-term goal. When you’re deciding how much you’ll need, consider the average cost of the type of house you’re looking for in your area and remember that the changing markets could affect this number as you save.
- Contribute to your child’s education. With education costs rising faster than inflation,1 your kids may be looking at a hefty tuition bill in 18 years. Instead of putting off saving, consider funding your child’s college expenses through investments to take advantage of compound interest.
- Pay off your own student loan debt. You may want to pay off your student loans early to avoid paying even more on in interest. While paying extra on those loans each month may make you feel like you’re back in school living as cheaply as possible, it will feel amazing to move on with life without that debt weighing you down.
- Get your life insurance and disability insurance in order. As important as it is to build wealth, it is just as important to protect your wealth. Making sure your loved ones will be taken care of if you pass away or are unable to work can give you a sense of security for the unpredictable future.
- Travel more. Sometimes accumulating experiences is just as valuable as accumulating assets. If seeing more of the world is one of your priorities, consider setting aside money in a travel account so you can take your trips guilt-free.
There is no one-size-fits-all approach.
The goals you set and how you achieve them are individual to you. A good financial professional understands this and will help you customize a strategy that works for you now and will help you create the future you desire for yourself tomorrow.
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1Hanson, Melanie. Average Student Loan Payment. (2022, March). EducationData.org.
2The Federal Reserve System. (2022, May). Economic Well-Being of U.S. Households in 2021. Retrieved from https://www.federalreserve.gov/publications/files/2021-report-economic-well-being-us-households-202205.pdf.