When you have a good understanding of your money attitude, it’s time to set your financial goals. Setting financial goals is the first step in taking charge of your finances. Setting effective financial goals does not have to be complicated, tedious or long, it can be very simple yet a very powerful gauging tool to ensure you are on the right track. Your goals need to be dynamic and change as your situation changes; you may have one set of goals for your 20’s and other financial goals when you’re in your 30’s.
1. Have Written and Specific Goals
This is very simple: Your financial goals have to be written! There is no other way around it, writing down these goals will help you visualize them and therefore make them real. This can be done on a simple piece of paper or you can use this simple financial-goals-worksheet (it’s in PDF format, download PDF reader). You also should make sure these goals are specific and not just very broad and vague. A vague goal would be:
I’ll save for a big down payment
This is a very a ambiguous goal, it does not state how much you want/need, how long you have for it and how you’ll achieve it. A more specific goal would be:
I need to save $30, 000 for a down payment on a 2 bedroom home and I need this amount in 2.5 years from this month.
This is much more specific objective, you know the amount and the time period. This will enable you to develop a more specific plan to reach your goal. Being specific sometimes can seem hard, but with practice it will become easier.
2. Short, Medium, and Long-term Goals
Often people have several financial goals, some are short term, such as saving for a new laptop, and some are long term, such as retirement, and others fall in between like saving for a car in 2 years. When setting goals the ideal thing to do would be to split them in those three categories. Short term may be in the next 1-3 years, medium term in the next 3-10 years, and long term 10+ years. Having them in these three categories will make the job easier in the long run. Remember that your goals do not necessarily have to be savings goals; it could be anything that will increase your financial well being such as paying down debt or increasing income.
3. Measurable and Consistent Review
Were you wondering why I insist on specific goals? Well, because you have to be able to measure your progress when setting goals. It’s great that you have financial ambitions, but what is the point of it if you cannot measure your progress and how will you know if you are on the right track? Ensure that your goals are measurable and can be assessed.
4. Setting Up the Plan
When you have a good understanding of your goals and a time horizon for achieving them, you need to put it into action. How will you get there? What tools will you use? Based on your goals and time-frame you’ll need to work out a plan, if your goal is a savings related, how much will you save per month? Where will these savings be held? If your goal is paying down debt, how much will you pay towards it monthly? Or bi-weekly? Can you make lump sum payments (income tax refunds maybe)? Make sure it is a realistic plan, if your monthly surplus is $400 do not say you’ll save $500/month keep things realistic. Set yourself up for success.
5. Review and Modify
From the time you set your original plan till the end date things will change. Unexpected things will likely occur, your income may increase/decrease, stock markets might crash and so on. It is vital to review and modify your plans on a regular basis to ensure you are on the right track. You can do annual reviews to see how things are going; maybe your disposable income has increased or you had a good year in the stock market or on the other hand things may have gone a little awry. Either way, a change maybe required. It is vital that you review and modify plans as needed.
Setting financial goals is the first step in a long process, the earlier you get started the better off you will be.
[Share your thoughts and win one of our Anniversary Prizes!]