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Category posts: Financial Goal Setting
Financial goal setting, yikes that sounds loaded. I’m here to break down what financial goal setting is, what are some attainable goals, and how to not be intimidated.
When dealing with finances, it is very important to develop obtainable and realistic goals towards your financial security. Chances are that if you don’t have a specific goal in mind and aren’t working toward anything specific, you’ll most likely be spending more than you normally think.
Setting realistic financial goals is important for many reasons, especially if you want to reach your ultimate goal. However, strategic planning becomes a huge part of this and can determine the success of your efforts.
So first things first, what exactly is financial goal setting? Essentially, financial goals are a target that you’re looking to hit for your finances, often to achieve some end goal in the future.
The “future” is a hazy measure of time, so we break this down into short-term, mid-term and long-term goals.
How To Set Attainable Financial Goals
With any realistic goal, it needs to be specific, attainable, realistic, measurable, and timely. This strategy of goal setting is also known as creating S.M.A.R.T. goals, which clearly defines your main goal and prevents it from being too broad and vague.
Also when setting attainable financial goals, you need to create short term and long term goals. Understanding how to set a realistic financial goal can extremely benefit you not only by improving finances, but knowing how to properly set a goal to crush other milestones in your life.
Examples of Realistic Financial Goals
- Establish a Budget
- Create an Emergency Fund
- Pay off Credit Cards
Short-term goals are usually about a year or two into the future. These goals give us the opportunity to look at our finances objectively and set reasonable goals that we would like to attain in the next few years.
These short-term goals won’t help you accumulate millions of dollars, but they will give you the confidence boost you need to set larger long-term goals. A great short-term starting place is setting a budget.
This gives us the foundation to understand our spending, set realistic goals and practice debt repayment and basic automatic savings. Within about a year or two, most individuals can establish an emergency fund to prepare for unexpected expenses.
Once we have established primary savings, expanding upon our emergency fund can prepare us for larger financial burdens like unemployment. Generally, financial planners advise accumulating an emergency fund to cover three to six months of expenses.
- Pay off Student Loans
- Save to Buy a New Car
Once we have achieved our short-term goals, it’s time to graduate to mid-term goals, yay! The adrenaline of achieving our short-term goals is pumping through our bodies and we’re ready to conquer these three to ten-year goals.
Repaying any credit card debts is a great short-term goal, but student loans are a bit lofty for most people to aspire to do in a year or two. Mid-term goals are set for about three to ten years. There is no doubt student loans can drag down monthly budgets and paying back these loans as soon as possible will minimize the amount of interest paid and protect your credit score.
Other important short-term goals depending upon the individual situation includes life insurance and disability insurance. Finally, at this point in time, it’s important to start looking towards what you dream of, whether that is a first home, a renovation, or higher education for children.
- Get Life Insurance
- Save Enough Needed for Retirement
Now it’s time to think long-term my friends. Retirement. Rule of thumb says that we should be saving between 10 and 15% of every paycheck in a retirement account like a 401(k) or Roth IRA.
To estimate our retirement needs we must begin by estimating annual living expenses. Then simply subtract any income your family will receive like social security, pensions or retirement plans.
Then consider the 4% rule. The 4% rule says that if 4% of your retirement savings covers the remaining expenses each year after any additional income, you will have a 30-year sustainable retirement.
Of course, this rule is based on historical economic conditions and does not guarantee a 30-year retirement.
Keep your goals SMART!
SMART goals are specific, measurable, attainable, relevant and timely. By ensuring our goals follow the SMART framework, we will set realistic goals that we can celebrate when we attain them. Vague or ambiguous goals make it difficult to know when we have achieved them, making it more likely to give up altogether.
The most important step in financial goal setting is to get started! The sooner you begin, the sooner you can conquer your short-term goals and are on the way to long-term financial peace.
Regularly Review Your Financial Goals
People who know how to set realistic financial goals review their goals at least once a month to review their progress. This is useful to see exactly how far you have come, knowing if you need to change a few goals.
When it ultimately comes down to it, goal crushing is all about self-discipline and doing your absolute best to do anything you set your mind to.
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