Have you ever made a budget with the best intentions, only to give up after a few weeks (or days) because it's too restrictive? Budgeting
requires sacrifices that can get old really fast, especially if you aren't reaping rewards along the way.
The problem is, without meaningful financial goals and a budget strategy, it's easy to get stuck. In this article, you'll learn how to
set and achieve financial goals you care about.
What are financial goals?
Financial goals are money-related objectives you want to achieve; for example, earning six figures in a year or saving $2,000 per
month. However, financial goals can also be objectives that require money, such as buying a house, a vacation home or paying off
student debt. By identifying something you want to buy, pay for, or experience in the future, you can engineer a plan to get the
money it requires. The monetary target is your financial goal.
There are two main types of goals you can achieve:
- Short-term goals: These are the things you'd like to achieve soon, within a year or less.
Long-term goals: These require you to take a step back and look at the bigger picture. They can include goals you'd like to achieve
in two years, all the way up to 50 years in the future.
Note: When setting goals, having a combination of both short- and long-term objectives is helpful. It can be hard to continue to
work every day toward a goal that's 30 years away. However, if you are working toward a cohesive plan that combines weekly, monthly,
and long-term goals, you'll get rewards along the way that keep you going.
Setting financial goals
Once you decide you want to set financial goals, where should you start? Well, if your goals don't align with what you really want,
you likely won't stick with them when the going gets tough. So spend some time really thinking about and imagining the life you want.
What would you like your future to look like? Who will be there? Where will you live? What do you want to have and experience?
Every person's aspirations are going to be a bit different, and the financial goal you set will depend on many factors, including
your cost of living.
If you're in need of some inspiration, here are some examples of both short- and long-term financial goals.
Short-term financial goal examples:
- Build an emergency fund
- Take a cooking class
- Paying off a credit card
- Purchase a bike
- Take a family vacation to Hawaii
- Remodel a part of your home
Long-term financial goal examples
- Start and run a successful practice
- Paying off student loan debt
- Live comfortably—whatever that means for you—in retirement
- Pay for your kids to go to college without borrowing
- Own a vacation home
Note: When it comes to thinking about financial goals, take some time to write down things you hope to achieve in life. Don't hold back!
It can help to start big, then work your way down to the smaller things, including something you could achieve as soon as this month.
How do your dreams become reality?
With your dreams written down, it's time to create a plan that can bring them to life. You'll need to figure out how much it will cost
to achieve each of your goals, which can take a bit of research and some simple math. You'll need to piece together a plan on when and
how you'll reach each target based on your income and expenses.
A great framework to use when creating a plan for financial goals is to ensure they are SMART. It's an acronym that says each of your
goals should be specific, measurable, achievable, relevant, and time-bound.1 For example, let's say you want to build an emergency fund.
If you applied the SMART principles, here's what that would look like:
- Specific: I want to build an emergency fund of $20,000.
- Measurable: I want to save $4,000 per year, which is $333 per month and $11 per day.
- Achievable: My budget includes up to $450 of disposable income that enables me to save the targeted amount of $333 per month.
- Relevant: According to my income and expenses over the past year, I should be able to achieve this goal.
- Time-bound: I want to save $20,000 within five years.
By making sure each of your goals follows the SMART framework, you can create a plan to actually achieve the things on your list.
You'll then need to stick to the plan, track your progress, and celebrate your wins.
Note: Make your daily targets highly visible so they stay top-of-mind. For example, you may consider placing them on a bulletin
board, on a notepad by your work station, or in calendar reminders.
The bottom line
While budgeting often gets a bad wrap, when you're doing it to create the future you truly want, it feels different. You make many
small but strategic decisions each day that gradually bring your dreams to life. Plus, by layering short- and long-term goals, you get
rewarded along the way.
1. Building Blocks. "Setting a SMART Savings Goal Worksheet."