You are working towards goals all the time. Maybe you’re focused on a personal goal, like losing weight or getting more sleep, or a career goal, like getting promoted in your current business. In addition to focusing on these ambitions, it is essential to aim for financial goals.
What are the financial goals?
Financial goals are measuring sticks that apply to any area of your money management skills that you are looking to improve.
While financial goal setting is a crucial part of an individual’s well-being, the majority of Americans struggle to find something to work towards with their money. In 2020, only 38% of adults in the United States had specific financial goals, according to a study by Lincoln Financial Group.
Why financial goals are so important
You could think about what you want to accomplish with your money, but making that rosy personal finance picture a reality requires a specific, achievable plan to follow. Goal setting can break down a much larger goal into smaller steps, allowing you to feel a growing sense of accomplishment as you get closer to achieving it. This positive reinforcement can put wind in your sails and move you forward, especially for the more difficult stages ahead.
Consider running a marathon. Rather than trying to go out and run 26.2 miles tomorrow, you could set a goal of running 15 minutes today. As you continue to work out towards race day the goals get harder and harder, but your steady progress has helped make the rest of the training more within your reach.
The same principle can apply to setting financial goals. When it comes to money, what gets measured gets done. If you set a goal of saving 10% of your monthly income, you can regularly check your account balance to make sure this is actually happening. Setting these goals is one way to hold yourself accountable on the path to financial security.
Track and adjust your financial goals
Setting a financial goal is not an act to be defined and forgotten. To achieve any goal, you need to regularly calculate how far away you are. It is important to monitor your progress and make adjustments if necessary.
How often you track your status depends on the type of goal. For example, if you’ve decided to set a goal of staying on a budget, you’ll need to monitor your progress throughout the month, not just as you do your tally on the last day of the month. By then, it’s too late to tell if you’re overspending.
For long-term goals such as retirement savings, these assessments may have wider windows between them. Maybe you can use your 401k quarterly statements as recording dates, or you can make a few appointments with your financial planner to discuss if it’s time to change your strategy.
When thinking about your financial goals, it’s important to remember that life is coming. You could be faced with an unexpected job loss, a huge sum of medical bills, or some other major event that will derail the original path you had planned. That could mean adjusting those goals or hitting the pause button for a while until you can get back on track. It can also lead to a whole different set of goals and priorities.
Examples of major financial goals
Some financial goals require your immediate attention while others seem to be far off on the horizon. These variable deadlines will have an impact on your priorities and your strategies to achieve them.
Short-term financial goals
Short-term financial goals are goals that demand your immediate attention. For example, if you’ve accumulated credit card debt, paying it off to avoid additional charges should be high on your to-do list. As you hit that zero monthly balance, you’ll also want to set a budget to track your spending and avoid the same pitfall in the future.
There are also fun, short-term financial goals. If you want to take a spring break next year, make a plan to save for those expenses. With monthly deposits set aside, you can enjoy a getaway without worrying about getting into debt.
Medium-term financial objectives
With medium-term financial goals, you have a little more time. Maybe you are considering buying a home and want to save a significant 20% down payment to avoid paying mortgage insurance. Maybe you want to save enough money to buy your next car in cash. These goals may not seem close, but the right savings strategy will bring them a little closer.
Long-term financial goals
The classic long-term financial goal is retirement. In your twenties, still early in your career, leaving the workforce can make you feel like it’s a world apart. However, now is the best time to set a goal: when you have more time to get there and can maximize an employer-sponsored retirement plan and an IRA. If you wait until you’re 45 to set your retirement goals, you might just feel like you’re staring at an incredibly high mountain and feel overwhelmed as to where to start climbing.
13 popular financial goals
If you don’t know where to start in setting your financial goals, consider some of the key steps that appear on many people’s lists.
- Create an emergency fund
- Establish a budget
- Get out of credit card debt
- Improve a credit score
- Repay a car loan
- Save for a vacation
- To buy a house
- Pay off student loan debt
- Save for a child’s college education
- Pay off a mortgage
- Buy a holiday home
- Save for a comfortable retirement
- Leave a legacy to heirs or a charity
Whatever financial goals apply to you, be sure to add establishing your financial literacy (and constantly strengthening it) to the list. One of the keys to your success is to be a lifelong learner, determined to learn more about saving and investing. With this commitment to education, you will be able to set the right goals at the right time.