Setting financial goals is the fundamental of financial planning process, after all if you do not have a financial goal what is the point of financial planning? Setting financial goals does not have to be complicated, tedious or long, but it is a great gauging tool to ensure you are on the right track. Here I will outline some steps for effective financial goal setting.

Steps to Setting Financial Goals:

1. Write your goals down and be specific.

Writing down your financial goals will help you visualize them which in turn helps you understand your goals. You can just use a piece of paper and pen, but make sure you keep it in your files, alternatively you can use this simple financial-goals-worksheet (It’s PDF format, download PDF reader) I have developed.

When setting financial goals make sure it is as specific as you can be, vague goals are not effective. The more information you have written down the higher your success rate will be.

Example of vague goal:

Save to buy a nice car.

This is a very vague goal, how much do you want to save? Will it be new? Leased? Used? When do you want to buy it?

Example of specific goal:

Save $15,000 to buy a pre-owned, 4-6 year old Honda Accord or Acura by August or September 2010.

This is a very specific goal, you know how much you need, for what you need it and when you need it.

At first you may find it a little difficult but overtime you will get used to it.

2.       Determine short, medium and long term goals. financial-goals

Everyone has a slightly different definition of what short term and long term is, in my opinion short term is anything 1-5 years, medium is 5-10 years and long is 10+ years.
It is a good idea to first determine these categories so that you can use them effectively.


Short term goal: save $2000 for winter trip to Mexico next Christmas, all-inclusive trip at a 4.5 or 5 star resort.

Medium term goal: Accumulate $50,000 for son’s College in about 10 years.

Long term goal: Accumulate $1,000,000 for retirement in 40 years.

Your financial goals don’t necessarily have to be for saving it could be paying down debt

Make sure your goals are realistic and achievable, I always suggest start out with smaller goals and move to bigger goals. If you set a goal of saving $200,000 in the next 10 years and your disposable income is only $200/month besides not reaching your financial goal, the psychological impact of failure can be very profound and you may not even achieve any smaller financial goals. It’s better to set a smaller realistic goal and work your way up to financial success.

3.       Financial goal must be measurable, and reviewed consistently.

This is why setting specific financial goals is important, because you will be able to measure it. If your goal is to save $10,000 in the next two years for a car you know you will need about $417/month so every month you can measure it and see if you are on track or need to make modifications. If your financial goal is “save for a car” how will you know if you are getting there or not?

You should also review your financial goals on regular bases, if it is a short term goal you will probably have to do a checkup monthly, if it is long term, like retirement, quarterly or semi-annual review will suffice. I personally do a monthly review of my financial health, I think everyone should do at least semi-annually update of their financial health.

4.       Set-up a plan towards your financial goals.

Now you know how much you need and how long you have to reach those financial goals. Although having all thais information is crucial without this step it is also worthless, so set up a plan! Now you need to set up a savings or debt paying plan, this could be a monthly or bi-weekly plan. You will have to work backwards to figure out how much you need to save to reach those goals, the shorter the time frame the more accurate you can be.. Base your plan on your current financial situation, do not account for raises and bonuses or any extra income in the future that you currently do not have, otherwise you may set yourself up for disappointment if they do not come in.

5.       Review and modify your financial goals as needed.

As mentioned in number 3, you have to monitor your plan and make changes as needed. Things will change over years, so your financial goals have to be changed accordingly.

Although I titled this post in the series as “Setting Goals” it is pretty much financial planning in a nutshell.

1.       Define and set goals.

2.       Set-up a plan

3.       Implement the plan

4.       Monitor and modify the plan

There obviously is much more to comprehensive financial planning than just your financial goals, but this is one of the most important and basic components of financial planning.

I have made a very simple Financial Goals Worksheet in PDF format you can download here.



Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.