5 steps for setting financial goals and some examples
Setting financial goals provides a framework for determining what is important to you financially and what you have to do to achieve these big milestones. It provides much-needed structure to your monthly income, leaving you feeling more in control of your spending and putting you on a path towards financial freedom.
1. Clear objectives that are realistic
The first step in setting financial goals is to answer the question – how do you define success? Setting clear objectives on what you are trying to achieve and how you will define your success will help you work backwards from your end goal. Once your objectives are clear you can put a monetary value to them within a time frame. The important thing to remember here is that you should list each and every one of your financial goals, no matter how small.
Whilst it’s good to be optimistic in setting goals, making them too difficult will affect your chances of reaching them, it can stunt your motivation and dint your confidence. Making your goals realistic will help you stay on course and keep you driven throughout your journey.
2. Think ‘SMART’
SMART is an acronym which guides your criteria in setting objectives:
Say one of your financial goals is saving for your pension, applying the SMART method to this goal is easy. First set a specific goal which in this instance might be saving ‘£X in my pension’, making this measurable means measuring your success. Make this goal achievable by making the amount you save doable within your current income, don’t stretch your money too far otherwise you might find yourself coming up short each money. Making this goal realistic and time-bound means taking the time to establish a realistic timeline in which you can reach your end goal.
3. Short term VS long term
The approach towards achieving every financial goal will not be the same, it’s important to split them into short term and long term goals.
As a general rule of thumb, any goal which is due in the next 3 years is a short term goal, any longer than 3 years they are long term goals. So, the act of boosting your pension savings, as mentioned previously, will more than likely be more than 3 years away. But saving for a big holiday or some home renovation that you want to do in the next 3 years will be a short term goal.
4. Rethink your budget
Once you’ve done the basics for your financial goals the next step is thinking about your spending budget. With your new financial goals, you might need to allocate more of your income towards saving and less to spend. Things to think about here include how much you need to meet your monthly living expenses? How much is left over after your monthly costs to fund your financial goals?
5. Make yourself accountable
Accountability is important in financial goal setting, to help your momentum but also to keep track of your progress. A great way to keep yourself accountable is by writing your goals down and pinning them somewhere you will see them every day. Whether that’s on your phone or pinning a physical list to your fridge or your mirror, keeping yourself accountable is key.
Once you’ve written them down you can’t just forget about them, it’s important to revisit your goals regularly to check in with your progress and to see if you need to make any changes. By doing this you will be able to scale your spending and saving as your situation requires, providing a flexible way for hitting your financial goals.
Examples of financial goals
Paying off credit card debt
Reducing credit card fees is a top financial goal. The interest on credit cards means the amount you have to pay back can increase exponentially and if you aren’t on top of your repayments this can affect your overall finances and financial goals.
Building an emergency fund
Having an emergency fund comes in handy when any unexpected costs come up. It’s best to save up for 3 months of living expenses including rent, food and travel. Therefore if you lose your job you are able to live for 3 months without any regular income.
Saving for retirement
When it comes to saving for your retirement, the earlier you can start the better. Contributing as much as you can as early on means you will have a better retirement pot later on in life.
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