Have you ever wondered what a decade from now will look like for your money goals, let alone a month from now? Well, the truth is that you need proper planning to reach your financial goals. Therefore, to avoid ending up somewhere you didn't intend, the recommendation is to know where you are going. If you are a DIY enthusiast, you can use resources like the Manward letter and plan independently. Alternatively, you can hire a certified financial counselor to help you. Either way, you will need a Specific, Measurable, Achievable, Relevant, and Timely (SMART) strategy.
With that said, have you been struggling with setting your annual financial objectives? Don't worry! This article will help you keep an ear to the ground on the main tips that you can leverage to set your yearly financial goals.
But first things first! What are money goals?
What are Money Goals?
Money or financial goals are spending, savings, or investment targets one hopes to attain within a specific time. In other words, they are like little ships from the famous saying, "I am just waiting for my ship to come in." When determining the type of goal that you intend to achieve, it is essential to know the stage of life that you are currently in.
For example, suppose you are a high school student. In that case, you may not be too worried about having sufficient retirement income. Instead, you are more likely to have short-term goals, such as saving a certain amount of money to purchase a used automobile or a pair of shoes.
Conversely, you are more likely to prioritize saving money for your children's college education or buying a house if you have a growing family.
1. What is Your Inspiration?
When setting money goals, your first step should be finding your inspiration. Ask yourself the following two questions;
- What do you want?
- Why do you want it?
In this case, the why part is significant in locating your inspiration. Generally, the idea here is to attach reasons to your set targets to help put them in perspective. In the end, this step is critical in fueling motivation.
Let's have a look at two common scenarios. In the first scenario, your inspiration can be paying house rent in case you lose your job, and building an emergency fund for yourself can help fuel this motivation.
In the second scenario, your inspiration can be affording to direct your monthly income toward something like a wedding rather than paying loan interest. In this case, doing away with credit card debt can also help fuel this motivation.
2. Examine Your Situation
Sometimes it is okay not to have a specific goal or goals. That's because you may be thinking about numerous goals but unsure about the next step. At this point, you can start by observing your current position. It doesn't matter whether your motivations are long-term or short-term. Examining where you stand today plays a significant role in setting you on the right trajectory.
The following are the main things you should have an understanding of to determine your goals and their prioritization.
- Income tax situation
- Net worth
When attacking financial goals, the recommendation is to follow an order that begins with developing a budget. A budget will help you prevent underspending or overspending to keep all your money goals on track. You should then build an emergency fund that will keep you afloat should you experience unexpected medical bills, a job loss, or other financial shocks. The steps involve saving for retirement and paying off your debt.
3. Consider a "SMART" Strategy
As mentioned at the beginning of this piece, whether you plan your finances independently or work with a certified financial counselor, you must think "SMART." Thinking "SMART" involves considering all the necessary units of a good financial plan, including all the steps required to reach it and the goal itself.
Generally, ensuring that any money goal is "SMART" is one of the strongest bases for setting the goal. Therefore, make an effort to ensure that your financial goal is Specific, Measurable, Achievable, Realistic, and Time-bound.
For example, if you intend to save for a vacation in another country, start by outlining the trip's details before anything else. Decide when you wish to start the vacation after picking your most-preferred destination. After estimating the holiday's total cost, ask yourself if the goal is practical and doable based on what you currently earn, your expenses, and what you usually save.
But if you can't save enough money for the vacation within six months, don't worry because it is normal for the goal to seem out of reach. You can try mitigating this by pushing your set deadline to 12 months or make any of the following adjustments;
- Register a new savings account featuring a higher interest rate
- Automate your savings
4. Categorize Your Financial Goals
Whether you have one or multiple financial goals, they will belong to either of the following categories;
- Critical goal
- A need
- A want
After establishing where each of your financial goals belongs, you will be in a better position to know which one needs funding first. For example, you might have one short-term aim of trading your automobile, which is a "want." However, you might also have another short-term but critical target of building up your emergency fund. In this case, you can prioritize funding the critical goal first, especially on a tight budget.
That said, labeling every money goal on your worksheet as short-term, mid-term, or long-term is essential. For short-term goals, the deadline can be in six months to five years. On the other hand, mid-term and long-term goals can last up to 10 years and over ten years, respectively.
5. Ensure these Goals are Yours
Let's face it! Everyone finds it tempting to observe what others are doing and feel the urge to do the same. This is where the comparison comes in. For example, your immediate neighbor might be driving the latest model car or taking extravagant vacations multiple times a year. While that is good for your neighbor, it doesn't necessarily mean you should be doing it too.
Therefore, instead of comparing what other people are doing, the recommendation is to focus on your lane and be original. This means looking for money goals that make sense to you and being clear on your reasons for picking the goals you have.
6. Write Your Money Goals Down and Treat Yourself
Setting money goals isn't complete if you haven't written them down. Therefore, try to mark these goals down after identifying and vetting them. This step is vital in keeping the objectives organized, tangible, and clear. You can try using a notepad or filling out your financial goals in a spreadsheet or worksheet.
But here is the thing! Always remember to track your progress by checking in occasionally. And lastly, you don't have to make setting money goals feel inconvenient. Therefore, once you complete objectives and make some progress, remember to reward yourself.
The abundance of financial advice floating around nowadays can make it challenging to identify the right financial goals for you. But even when that is the case, leveraging the above steps to set your money goals can help boost your financial security. Your main steps should involve identifying your inspiration, examining your current situation, considering a "SMART" strategy, etc.