How To Create Financial Goals
The first step for creating financial goals and planning is visualization. Imagine what your ideal relationship with money would be.
Then pinpoint which aspects of that dream are most important to you.
Do you want to be free of debt? Do you want to fund a better lifestyle? Identifying your personal financial goals is the first step to making them happen.
What Goals Do People Target?
Most people are looking to improve their financial health. How they achieve that will vary from person to person.
For some, becoming debt-free is the ultimate goal. A plan of action can make this possible. These individuals can start by clearing out their loans by paying off their mortgage, student loans, and credit cards.
There are many benefits to escaping a debt-trap. You’ll increasingly reduce your stress levels and you’ll less likely have to live paycheck to paycheck. It also opens the door to saving.
Whether it’s to build up an emergency fund or to put money away for retirement, the ability to save a portion of your income is a common financial goal. A reserve of funds can offer people peace of mind.
There are many possible financial goal examples, but one of the most popular aspirations is to invest.
Sound investments can result in profitable returns, which means that your money works for you.
Stage 1: Understand Your Situation
To turn your goals into a reality, you must first review your current circumstances.
Tally everything that you own including any savings that you may have accrued. These assets should then be weighed against your liabilities such as credit card debt or mortgages. Using a spreadsheet can be helpful when doing this.
Next, study your budget carefully. Assess your after-tax income and contrast that with your total outgoings, both compulsory and involuntary.
Some key takeaways from understanding your situation are:
- Detailing your circumstances and finances will better inform you of the framework you have to work with
- Doing this won’t be fun but it would be counter-productive to put a positive spin on the numbers. Be honest with yourself and approach planning realistically
Stage 2: What Would You Like To See?
Stage one can be painful for some, but it all becomes worth it once you start reaping the benefits. It’s time to focus on the positive future that you’re moving toward. Stage two is when dreams start to really become a reality.
Study your aspirations in greater detail and ask yourself what form you want them to ultimately take. Additionally, ask yourself what’s needed in order to make them happen. Don’t forget to aim high and get inspired.
Here are some examples of the queries that might arise:
- How much capital will be needed to start up a business
- Is purchasing a property preferable to renting
- Is a dream vacation eventually possible if credit cards are paid off
- Is a good lifestyle possible in retirement
Stage 3: Make A Plan
Once examined, goals often fall into three time periods. These time periods include short-term, mid-term, and long-term.
Short-term may be the purchasing of a household appliance. Mid-term could be the settling of all debts. Long-term might entail saving enough for your child’s education.
Establishing a reasonable timeline for each is crucial to your planning. Other considerations are:
- How much money is needed to achieve your goal? This amount should be divided into months or years and then deducted from your income accordingly
- List all the ways that extra money can be earned, as well as savings that can be made from living expenses
- List all resources you have at your disposal. One example may be to borrow money from a relative at zero interest to help pay off credit cards that have high interest
For the larger aspirations, you may find it beneficial to recruit the services of a financial planner.
How To Maintain Best Practices
You’re well on your way to attaining your financial aspirations. The difficult part is to now stay focused and keep to your strategy.
Here are some tips on how to remain disciplined:
- Don’t keep your goals to yourself. Tell your partner, family, and friends. Build a support network that’ll encourage you when times get tough
- Take satisfaction from reaching the small milestones. Each one is leading you in the right direction
- Don’t be afraid of refining your targets along the way. Review your budget and financial goals definition to make sure it remains right for you