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May 6, 2021
A financial plan shows you how to get what you want and when. But how do you first find out what you want? Setting financial goals is the answer. Financial goals are targets for what should be done with money over a period of time. And they are the foundation to a financial plan.
What's more, goal setting and actually writing down your goals, has been linked to greater success rates (likethe 1979 Harvard graduate study) because the goals become tangible, realistic, and actionable. So, before we jump into it, grab a pen and some paper and get ready to intentionally set your financial goals.
When you set your financial goals, they don’t have to be centered around money. But they certainly involve money. Whether you want to retire soon, move to a new city, or leave something for your children, money is not the driver of these decisions, but it certainly takes money to accomplish them.
There’s no outline for what your financial goals should be because it all depends on you. Goal setting requires a deep look into your life to figure out what it is you want to achieve. Here are some things to consider about setting financial goals.
By knowing your goals, you will be able to stay focused on achieving them. But if you aren’t working towards any, chances are that you are spending more than you should.
Without setting financial goals, it’s easy to get into the habit of overspending, underpaying debt, or using up savings which, in turn, will loosen your financial security over time. With something to strive for, there is motivation to make good financial decisions
Achieving your goals may take longer than expected, with unforeseen circumstances arising as you work towards them. While there is no way to prepare for this, having the goals will allow for readjustments as your situation changes.
In order to set financial goals, you need to know how much you are already spending (budget), what you own and what you owe (net worth), and what irregular upcoming expenses you are going to be making. Knowing this will help make realistic goals.
That is, Specific, Measurable, Attainable, Relevant, and Time-Specific. SMART goals are within your grasp. With this type of goal, planning is easier and clearer because they are a real possibility compared to an out-of-reach goal that is not in your power to obtain.
The time-specific aspect of your goals is something to highlight. Having your goals time-categorized will help when planning towards them. Goals should be grouped into three categories related to time:
Especially if you have a lot of ideas for what you want, it’s easy to forget your goals. Remember what you’re fighting for with a list of goals. Sometimes visualizing them can be helpful. Create a chart of all your goals, describing their cost, timeframe, and how you will achieve them.
Once you have all your goals outlined, rank them by their importance. Do some soul-searching to figure out what matters most to you. And note that your short-term goals shouldn’t affect your long-term goals by much. For example, wanting to pay off your credit card debt can be as much of a priority as wanting to buy a house, they just have different timeframes, so it makes sense to separate priorities by their time category.
Whenever we sit down with someone for the first time, we establish what their goals are before building a financial plan. It’s the first step. Afterward, we determine what lifestyle they can live and what they need to do to achieve those goals.
Your plan should specify how much you need to be saving in what types of accounts. Based on your cash flow and current financial picture, you should calculate these savings rates. Your savings can go through the use of securities. Depending on each goal’s timeframe and your risk profile, you should be diversified among multiple investments. Remember, the plan is only as good as its execution and constant review. A financial planner can help with this.
Setting financial goals will keep you living within your means, while also keeping your future in mind. If you haven’t already, take some time to think about what you want for the times to come.