It’s called personal finance for a reason. Everyone has different ideas for their financial future. Whether you want to break the paycheck-to-paycheck cycle or work towards a life of financial freedom, setting financial goals can help you get there.
Financial goals define your money-related targets. For example, retirement is a big financial goal for many. But you can set financial goals for both the short and long term.
Let’s explore how to set financial goals for your own life.
Start with why
On the surface, money goals might seem only to impact your financial life. But that couldn’t be further from the truth. Our financial situations shape our lives in more ways than we may care to admit.
For example, you might want to visit your dream destination for fun. However, you’ll need money to make that dream a reality. Beyond a budget, our financial situation impacts our time freedom because more financial flexibility often grants us the ability to reclaim our time.
When you start setting money goals, consider your reasons why. Take a look at the reasons why you want to achieve a particular money goal. Perhaps you want to build an emergency fund for greater financial stability or want to pay down debt.
See where you stand
Before you can start moving in the direction of your financial goals, it’s important to determine where you currently stand. A few ways to assess your current money situation include adding up your net worth, looking over your expenses and tracking your income.
With a better idea of where you stand, you can focus your efforts on the most pressing money goals. For example, let’s say you have high interest credit card debt. You might choose to focus your financial efforts on paying that off before you start saving for a down payment on your future home.
When you take a close look at your finances, you may or may not like what you find. Regardless of where you stand, be kind to yourself. Instead of scrutinizing past mistakes, look to how you can change your trajectory for the better.
Choose SMART goals
If you have some broad money goals in mind, it’s time to transform those into SMART money goals. A SMART goal is Specific, Measurable, Achievable, Relevant, and Time-bound.
Let’s say that you have the goal of building an emergency fund. Instead of keeping the goal at that broad scale, nail down the specifics. For example, you could set the goal of building a $10,000 emergency fund over the next year, which means that you’d have to save $833 per month to meet your goal.
When looking at your big financial plans, find ways to break down bigger goals into more actionable steps. Write down your financial goals in a place you’ll regularly see, like your phone’s lock screen or bathroom mirror, to motivate your progress each and every day. As you move forward, mark your progress along the way.
Make it enjoyable
Not all financial goals are the most eye-catching. For instance, saving for retirement is usually a decades-long process that can sometimes feel like a drag. It’s easy to let your eyes slip off the prize.
Instead of letting your financial goals get stale, make sure to sprinkle in some fun rewards along the way. Set clear milestones that come with a reward, such as a fun splurge when you are halfway to your goal.
Build your goals into your budget and leave some room to enjoy the journey.