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How to Set Financial Goals
Do you ever feel as though you’re managing your finances but aren’t sure what you’re ultimately trying to achieve? Maybe you’re trying to spend less, save more, and pay down debt all at once but you don’t have a clear sense of what success looks like? Setting clear financial goals will help pave the way to financial well-being. This article explains why setting financial goals is important and provides easy steps to get you started.
Why is it important to set financial goals?
It’s important to set financial goals so that you know what you want to achieve and when. Without goals, you could be spending more than you should, saving too little and possibly accruing too much debt. Financial goals help you keep all these elements in check so that you keep making progress toward financial success.
What are examples of financial goals?
Financial goals can be short-, mid-, and long-term. Examples of short-term goals include paying off credit card debt, establishing an emergency savings fund, and purchasing a more expensive item such as a new computer.
Long-term goals include saving for retirement, saving for your children’s education, or paying off your mortgage.
Steps to Setting Financial Goals:
- Analyze your current situation.
This includes documenting information such as your current income, your credit score, how much debt you have, how much you currently have in savings, how much you have saved for retirement or you children’s secondary education, what your current living expense are, etc.
- Visualize what you want to achieve.
Make a list of all the financial goals you want to achieve and then categorize them as either short-, mid-, or long-term.
- Set SMART goals.
To reach your financial goals, it’s important to set goals that are SMART (Specific, Measurable, Achievable, Realistic, and Time-driven).
Specific – your goal must be clear and unambiguous. For example, it’s not enough to set a goal to simply save more. Instead, set a goal to save a specific amount.
Measurable – you must be able to evaluate the progress you are making toward your goal over time. For example, if your goal is to pay off credit card debt, you should be able to track how much you are paying down each month and how you are progressing toward your goal.
Achievable – you must be able to reach your goal given your current circumstances. Don’t set your goal too high to begin with. Maybe you ultimately want to save $10,000 but before you do that, you first need to save $1,000. Once you reach your first goal, you can always set another, building up to your goal of $10,000.
Realistic – again, assess the steps needed to reach your goal compared to your current situation. It’s unlikely you will be able to pay off $5,000 in credit card debt in two months if you currently earn $2,000 a month. But you may be able to pay it off over the course of one year if you’re diligent.
Time-driven – set a specific date for when you want to achieve your goal. It will keep you focused and encouraged to continually make progress.
- Make sure your short-, mid-, and long-term goals align.
When goal setting, it’s important to consider whether some of your short-, mid-, and long-term goals might inadvertently sabotage each other. For example, if you set a mid-term goal of paying off student loan debt, but also have a goal to go on an expensive vacation each year, the money you spend on your vacations may impact your ability to pay off your student loan debt by your specified date.
- Create your budget.
Once your goals are set, create a budget that will help you reach them.
- Continuously track your progress and adjust.
It’s important to hold yourself accountable for meeting your goals by continuously tracking your progress until you reach your goal. Also, be sure to adjust your budget as you reach your short-term goals to start making more progress on your mid- and long-term goals. For example, say your short-term goal was to create an emergency saving fund. Once the fund has been established and your saving goals are met, start focusing on the next goal, which might be saving for a new car or the down payment on a home. Lastly, if an unforeseen financial event takes place that knocks you off track, that’s okay. Just readjust your budget until you can get back on track.
If you have questions about setting financial goals or any of your banking needs, a Personal Banker from FNBO would be happy to answer them. Give us a call today.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.