How to Set Financial Goals: 4 Steps, Examples and Tips
Have you ever wondered why your financial goals fail or take too long to actualize? It can develop into a cycle where you plan, unplan, and replan or constantly end up in debt. Still, you can achieve success when you start setting effective financial goals as part of managing your finances. Setting up financial goals can help you actualize your goals and gain financial freedom because you’ll make sound decisions. In this blog post, you will find information on some of the best strategies that can help you set effective financial goals that work.
How to set financial goals
Follow these steps to set financial goals that will work for you:
1. Define what you want
To set effective financial goals, first define what you want. Reflect on what you want to accomplish in the short term and long term. For example, you can decide to increase savings, create an emergency fund, make more money, save for a down payment on a property like a house, pay off debt, start a business, or invest for retirement.
It is better to set SMART financial goals that are clear and realistic. Since SMART goals are specific, measurable, achievable, realistic, and time-bound, you can make adjustments when the need arises as you track your progress. Below is a breakdown of what SMART financial goals are:
Specific
The financial goals you set should be specific to show exactly what you aim to achieve. Clear goals motivate you to work towards reaching your goals. They are tangible and, therefore, make it easier to create a plan. For example, when thinking of saving more money, you can set a specific figure, such as saving $6000 in a year. If it is the first time you’re setting financial goals, you can check the different financial goal examples and choose the ones that suit your needs.
Measurable
Measurable goals are quantifiable; therefore, ask yourself how much is involved or for how long?
Measuring financial goals is important as it helps you track your progress, i.e., you understand clearly the amount of money you need to achieve your goals in a certain duration and the progress you’ve made so far. You become focused and motivated as you get closer to achieving your goals, and when necessary, you can make adjustments. For example, you can save $500 each month to reach your goal of saving $6000 in a year. You deduct the total amount saved after several months from the total to know how much is left to achieve your goal.
Achievable
It’s important to set achievable financial goals to avoid being overwhelmed or discouraged, which can cause you to give up. For example, if you want to save $500 each month, you can save $125 per week. Be realistic and consider your income and other constraints to ensure you set financial goals you can accomplish.
Relevant
The financial goals you set should be relevant to your life and future. They should align with your financial priorities, i.e., what you want to achieve in life. Think about the next few years and what you want to be considering your financial situation. Also, set your goals to fit with your values and long-term objectives. Reflect on how the goal helps you to reach larger financial objectives and what you need to do to stay on track. For example, the goal to save $6000 in a year is a great way of building wealth. You can use it to start a business, invest in certain stocks, or acquire skills to get promoted or a better-paying job.
Time-bound
Setting a deadline involves a specific timeframe that creates a sense of urgency for achieving your financial goals. It ensures that you don’t procrastinate. The time frame should be realistic to stay motivated and on track. Therefore, consider available resources and your current financial situation. The timelines can range from a few months for short-term goals like saving for vacations to years for medium—and long-term goals like saving or investing for retirement.
2. Write them down
Once you have defined what you want, whether it’s one financial goal or multiple goals, write a list with specific details on each goal and the deadline. You can include the amount, the steps to be taken, and potential roadblocks. A written list of your financial goals makes them concrete and tangible. It is a record you can refer back to measure progress and stay on track. Write on a piece of paper or journal and keep it safe, add a reminder on your phone, or use cloud-based storage systems like Google Drive and Dropbox.
3. Create a plan
Using the detailed list of financial goals you have written down, create a plan to ensure you stay on track and achieve them. A plan keeps you organized and ensures you’re moving in the right direction. In the plan, establish an order of priority based on which ones you think are most important or the timeline. Next, create a calendar with deadlines to help you track progress and remain accountable. In the saving $6000 in a year example, you can choose a specific date of the month as the deadline for saving $500.
The plan you create should include facts and a budget where you list your income and expenses. You can make adjustments when a change occurs, such as increased or reduced income, a new job, or a major life event. You may need insurance coverage to manage risks. If you find it challenging to create a plan yourself, get help from a professional. Find an accountability buddy to encourage and keep you on track, or set up a reward system showing the reward you get when you meet milestones.
4. Take action
Now that you have created a plan, the only way to actualize your financial goals is by taking action. Your dreams of having a secure financial future can only come true if you take action. Even when you don’t meet your goals as quickly as you had planned, don’t get discouraged. Perseverance, dedication, and consistency are key to achieving success with your financial goals.
Conclusion
Setting financial goals is essential for a brighter future. It involves defining your financial goals, writing them down, and creating a plan that includes methods you can use to achieve them. These goals become a reality when you take action. You can set financial goals at any stage in your life because it’s never too early or too late. Setting these goals can help you utilize the money you have in the best way and meet your financial needs. You can gain financial freedom and control your finances when you set effective financial goals and put in effort to achieve success.