How to Create Financial Goals
Everyone should have financial goals to ensure that their money is spent wisely now, and invested wisely for the future as well. Setting financial goals is, generally speaking, a generic practice, with basic principles that are applicable across demographic boundaries. The following tips will help anyone establish solid financial goals.
Establish SMART Goals
You should, of course, be smart when setting any financial goal. In this case, however, smart doesn't mean wise, but instead stands for:
Specific: State exactly what you want to accomplish (Who, What, Where, Why)
Measurable: How will you demonstrate and evaluate the extent to which the goal has been met?
Achievable: Stretch and challenging goals within ability to achieve outcome. What is the action-oriented verb?
Relevant: How Does the goal tie into your key responsibilities? How is it aligned to objectives?
Time-bound: Set one or more target dates, the “by when” to guide your goal to successful and timely completion. (Include deadlines, dates, and frequency)
In other words, you should be setting goals with a specific purpose. Are you saving for retirement, college for future children, or both? Make sure the goals you set are realistically achievable, relevant to your lifestyle, and capable of being tracked over time, as well as measured at the end of the day.
Short-Term, Mid-Term, and Long-Term Goals
Everyone views their life in separate stages: short, mid, and long term. You should determine which of these categories the goals you establish will fall into. The most common in each category are vacations (short term), buying a new home or vehicle (mid-term), and retirement (long term).
Estimate the Amounts Needed to Reach Your Goals
To the best of your ability, you need to determine how much money it will take to meet these goals. For your short-term and mid-term goals, this process is easier. You can research the cost of a vacation on your own and develop a rough estimate of the cost. Even buying a home is relatively simple to budget for. You need to determine a price range you can afford, and then save up money for a down payment that matches the homes in your budget.
Estimating an amount for retirement is difficult. The amount of money you need to live comfortably later in life can change between now and the time you retire due to inflation and cost of living increases. Additionally, a divorce or the death of your spouse could drastically change your approach to retirement. Keep all of these factors in mind and estimate an amount that would fully support you as an individual, rather than relying on the presence of a partner's retirement fund as well.
Set Deadlines for Reaching Your Goals
Financial goals, like any other goal, need a deadline. Setting a deadline for your financial goals not only helps you remain focused on your task, but it also avoids "financial creep," where money you intend to use for a financial goal is diverted elsewhere in your budget because you believe there is still plenty of time to save. Deadlines will keep you honest and help you achieve the goals you set.
Budget the Amount Needed Each Month to Achieve Goals
Last but not least, budget a safe amount of money each month to help you achieve your goals. You won't achieve any of your financial goals in one fell swoop, but rather through careful, determined savings. Find places in your monthly budget you can trim spending costs and divert that money toward your goals, with an emphasis on those goals which you have prioritized as the most important.
Setting financial goals can be the start of some truly positive changes in your life. The clearer your goals are, the more confident and motivated you will be to take steps in the right direction when it comes to your finances, and the more equipped you will be to join the decision-making process for your family’s financial future. If you need help, contact Financial Asset Management Corp. to discuss your options.