Your first goal: set goals.
Okay – on the surface, setting financial goals seems simple enough. “I need to buy a house in a couple of years” or “I’d like to retire comfortably” or “I want to put my kids through college”…etc. The challenge is setting realistic, achievable goals. Setting your goals impossibly high will only set you up for failure and disappointment. The following is a list of easy ways to help you succeed at achieving your goals:
Plan for the Worst, Work for the Best
Short of winning the lottery or falling into a pool of money, setting a retirement goal of five million dollars in the next three years while currently earning $35,000 is…unrealistic, to put it gently. It’s important to think in relative terms – what can you realistically save over the course of a year without over-taxing yourself. Don’t assume you’ll get the raise you deserve; plan for the worst but work hard for the best.
Separate Your Goals Into Blocks of Time
Separate your goals into short-term, medium-term and long-term blocks. By doing this, you’ll create a clear path for yourself that helps keep you in check – every step of the way.
- Your long-term goal is to have children and buy a house in approximately 5-10 years. For that you estimate you will need $40,000.
- In the meantime, your medium term goal is to buy a condo with a $15,000 deposit. The plan is to sell the condo after three years and to use any profit from the sale as part of the down payment for the house.
- The short-term goal will be to earn $15,000 in about two years. You need to start saving at least $625/month, through either earnings or other sources of income.
As you can see, it starts with short-term goals. Your short-term goals need to include specific steps in order to help you reach those longer ones.
Quantify Everything. Set a Date.
Your goals should be as focused and specific as possible. Rather than wishing for a “nice car in the next few years” say “I want to buy a $40,000 car in 3 years”. This will make calculating goals and analyzing your progress way simpler. Follow that rule and you’ll set yourself up for success rather than failure.
Don’t Forget What You Owe
When talking about the future, it’s easy to forget the past. Those credit card debts and personal loans don’t care about your hopes and dreams. They also don’t care about your goals – they’re not going anywhere. Factor them in when deciding what you want from your financial future. In fact, before you come up with any other financial goals, your primary one should be to get rid of your present debt. There’s not really any point in earning 7% on your investments if you’re paying 21% towards your debt every month. That’s a losing proposition.
The Golden Rule: Don’t Lose Sight of Your Goal
Jotting things down on paper (okay, we’re old-school like that – you can also do this electronically) is one thing. Following through takes commitment. Also possibly a few sacrifices. Re-visit your goals often to strengthen your resolve. Don’t ever underestimate the short-term $100 or $500 goals, that will ultimately lead up to the thousands and (fingers crossed, people) million dollar goals.
Let’s recap real quick.
Five steps to creating and meeting your financial goals:
- Set your goals: Write down your financial goal(s) as clearly and specifically as possible. Use amounts and dates. Ex. “I will save $10,000 by April 2016.
- Start tracking: Use an excel sheet or a online tool like Mint.com to plan out your income and expenses
- Define how much you can save: Using one of those tools, find out exactly how much you can realistically afford to save
- Don’t forget your debts: Don’t forget to include any and all debts in your calculations. Getting out of debt is critical to your financial future.
- Review and readjust: Get in the habit of reviewing your finances at the end of every month.
To learn more about setting and achieving financial goals, head over to Wall Street Survivor :)