We all know that money is a very important aspect of life. Money influences the many decisions we make every day.
Your financial wellbeing influences how you live your life today, tomorrow, and who you interact with. That’s why we all want to be well financially as our financial wellbeing influences almost every part of our existence.
Most of the things people do revolve around getting money and sustaining it. But, one thing about money is the hard work that comes in getting and maintaining it.
If getting money and sustaining it is a struggle for you, setting financial goals would help you balance out your finances.
Your financial goals will help you control how you spend and how you save your money. These goals include things you want to achieve in relation to what you perceive as financial success. Maybe it’s buying a house at 30, traveling the world, running businesses, or living your life how you want to.
Know your aspirations and what matters to you.
What do you really want in this life that needs money to be accomplished? What matters to you in relation to money and why does it matter? That’s where you start.
Everyone has a different definition of success and understanding your definition of success is where you start. What you want and why you want it is different from someone else as the measures of success are different.
These merits of success according to you is what you need to achieve or work towards. It’s what you will use to set your financial goals.
Knowing what you want to do is not enough but knowing why you want to do it is what will push you to do it.
You probably want to own a home at 30 so that you don’t focus on paying rent in your 30s. Perhaps you want to travel the world in your 30s or have several businesses running. Maybe all you want is financial security in the later years of your life and investments are what you need.
Where are you now?
Considering where you are now is a very crucial step in setting your financial goals. Assess your financial health at the moment to figure out what you need to work on to get to your goals.
Analyzing where you are financially will help you understand or notice what you need to work towards. With this figured out, you will know what your immediate goals should be.
When evaluating where you are, think of your current income, income tax, your current budget and your net worth is.
Your income is everything you earn from all the income sources you have and income tax is the amount is deducted from your income as tax. Examine your expenditure in line with your priorities – needs and wants and figure out where your income goes.
Consider your net worth too by calculating the value of your assets without your liabilities. Your liabilities include your student loans, mortgage, or anything that depletes your resources. On the other hand, an asset is anything that has monetary value to it. According to financial advisors, your assets should outweigh your liabilities to have a positive net worth. So, if your liabilities exceed your assets you have a negative net worth.
This process will help you set specific goals as you now know where you are and where you want to be.
Figure out Your goals – short-term, mid-term, long-term / SMART.
After knowing what you want, why you want it, and where you are, you can now write your goals.
Writing down your goals gives you more clarity on what’s a priority and what’s not.
Therefore, as you come up with or as you write down your goals, put urgency/ priority in mind.
Let your financial goals be in 3 categories; short-term, medium-term, and long-term.
Remember that your goals are highly determined by where you are financially at the moment and where you want to be or achieve as success.
Short-term financial goals.
Depending on where you are at the moment, your short-term goals could include goals that are urgent or intermediate. Something you want to accomplish the soonest and requires a short time to do.
- It could be coming up with a budget that balances your expenditure and your income and to be in more control of your spending and saving.
- Saving for a trip to South Coast to have some time off work or spend more time with your family.
- Starting an emergency fund to be able to afford your rent and upkeep in case you lose your job.
Medium-term financial goals.
Your medium-term goals include things that are not urgent and may take a little bit more time to work towards.
- Paying off your student loans and other debt.
- Setting aside money to start a business or to go back to school for a second degree or Masters.
- Saving up for your wedding and honeymoon.
- Saving up enough down payment for a land or a house you want to buy in the suburbs.
- Increasing your sources of income to be more stable financially.
- Saving up to buy a car to stop dealing with the draining commute in a bus.
Long-term financial goals.
Your long-term goals include all that you want to do or be in the future and may require more time and planning to accomplish. The biggest of all being ensuring a comfortable retirement.
- Investing in real estate – land, rental and commercial property.
- Living debt free after your 40s.
- Working towards a comfortable retirement.
- Starting a non-profit organization as a legacy for your children.
- Getting your children through university debt/ loan free.
As you come up with your goals make sure they are SMART as this increases your chances of accomplishing them.
Make sure all the goals are very Specific, Measurable, Achievable, Realistic/Relevant, and Time-bound. Don’t just have ambitions for the sake of having them.
Budget plan for your goals.
Obviously, all your financial goals need finances to be accomplished. With that said, you have to have a plan on how to finance all the things you want to do.
With all your goals in place according to priority and timelines, you can now work towards a plan that will budget them. For example, if you are working on an emergency fund, budget a specific amount of your monthly income towards it.
You can come up with a monthly, quarterly, or annual budget for your goals with a specific amount of money set.
Be very realistic with your budget by being clear on what comes in and what goes to avoid imbalance.
You don’t have to deal with all these goals at once. That’s why they are in categories. Therefore, take care of them according to their priority and ‘weight’. Take care of your immediate needs first then you channel what remains to your goals.
Monitor your progress.
This is one of the reasons your goals should be Measurable and Time-bound. These two help you monitor your goals.
Evaluate how far you are to achieving your financial goals from time to time. You don’t even have to be technical about it. Simply check how much and how consistent you have deposited in your emergency fund account or your travel savings account. Clearly, from that, you can tell if you are doing well or you are slacking.
Reward yourself for the progress you are making towards achieving a goal as this will motivate you. When a goal is realistic, it is easy to achieve it without having to break a bone for it or feeling like a chore.
The secret to making progress is tackling the high priority goals first such as a retirement savings account, reducing debt, or setting up an emergency fund. Once you are done setting the high priority goals up and running, you can now take up the fun ones such as saving for travel or increasing your sources of income.
Consider using apps to track your progress and see how close or far you are from accomplishing your goals.
As you grow in age, setting financial goals should be a priority.
Setting financial goals helps shape your future in the next few months or even 50 years to come. Know where you are at the moment and where you want to be.
Make sure the goals are Specific, Measurable, Achievable, Realistic, and Time-bound. These goals will help you make necessary changes and develop healthy money habits as time goes.
You might fall back a few times but what matters is why you want to accomplish that goal. Look at the bigger picture – financial independence, living a debt free life after your 40s, or the comfortable retirement you want to have. Surely, the end picture should keep you motivated. Just make sure you are making progress and moving forward.
Make the hard and necessary adjustments you need to make to accommodate these goals. Financial stability comes with a price to pay- sacrifice and commitment.