A financial goal is defined as a target set by an individual to achieve financial plans or milestones. In simple terms, they are financial objectives that a person wants to accomplish within a specific time range. For example, they might save money for their kids’ education, travel, disasters, medical care, etc.
Setting financial goals may help people in practicing strict restrictions when they spend. It also promotes saving to reach those objectives within that time frame. Additionally, it helps people in making thoughtful decisions, particularly with investments. These objectives also give people more control over their financial choices and future.
You can formally look at your financial goals, amend them, and assess your progress from the previous year when you engage in annual financial planning. Take advantage of the opportunity to create goals if you haven’t done so already so that you can establish or maintain a solid monetary base.
Types of Financial Goals
Here are some objectives you should set up, ranging from short-term to long-term, to learn how to live happily within your means, solve your financial problems, and save for retirement.
Short-term Financial Goals
Short-term goals are financial goals that a person can achieve in less than three years. They may include building funds to buy a car or paying student tuition fees. Safety and liquidity should be the primary focus here. Bank and credit union accounts are wonderful places to put money because they will retain their worth in six months or a year. Additionally, they have simple liquidity. In less than a year, it should be possible to complete these initial steps:
- Make a budget and stick to it.
- Create an emergency fund.
- Get rid of the credit card debt.
Mid-term Financial Goals
Mid-term goals are financial goals with an achievement target of three to 10 years. For example, investing in stocks or buying a home are intermediate goals because they will take time to accumulate the necessary funds. Even though these objectives might not be fully realized, the person wants to achieve them soon. The mid-term goals build a bridge between your short-term and long-term financial objectives.
Long-term Financial Goals
The long-term financial goal is the primary goal, with the target of saving money for retirement. According to the IRS, you should put away 10% to 15% of each paycheck into tax-advantaged retirement plans, such as a 403(b) or 401(k), if you have accessibility to one, or a regular IRA or Roth IRA, depending on your financial situation.
However, you must determine how much you’ll truly need to retire to ensure you are saving enough.
How to Set Financial Goals
A perfect financial plan requires SMART financial goals. The abbreviation SMART stands for specific, measurable, achievable, attainable, realistic, and time-bound.
Goals must be specific.
Questions such as why the person wants to achieve the financial goal, what to do to attain the objective, and when the person wants to achieve the goal must be answered.
Goals should be measurable.
There must be a measure of progress to assess how far the objective has come to achievement. This will let the person know if they’re in the right direction. People must answer questions such as points of accomplishment and progress indication. For example, you want to save $2,000 in 10 months. The point of achievement is the 10-month target. The amount is $2000, and the progress indicator indicates that $200 will be saved every month for the next ten months.
Goals should be achievable.
Although achieving financial objectives can be challenging, they shouldn’t be inconceivably impossible. Consider a person who makes $40000 per month as an example. Saving $50000 every day shouldn’t be that person’s objective.
Goals should be realistic.
Realistic goals and purposes are the only ones that people can achieve. To create a strategy, a person should answer the following questions:
How to set realistic financial goals?
Is the goal reachable?
Is it feasible with the resources at hand? etc.
Goals should time-bound
When financial goals are time-bound, they become important. For instance, the objective is to save $2000. When should I save it? A decade or ten days? These questions are crucial, particularly when the long-term goal is the focus. It establishes a framework for the approaches used to achieve it.
Examples of Financial Goals
Set up a budget.
Create a budget if you still need to get one. This can help you achieve your other goals by limiting your spending and conserving.
Create an emergency fund.
An adequate emergency fund is an insurance policy for a financial shock, such as a job loss or an unanticipated medical expenditure.
Save for retirement.
Even though retirement may be years away, it’s crucial to begin saving as soon as possible to have sufficient money to support yourself.
Pay off debt
Focus on paying off risky debt with high-interest rates, like payday loans or credit card debt. Next, settle debt with a lower interest rate, such as a mortgage or student loan.
Even though budgeting frequently receives a bad rap, it feels different when using it to build the future you want. Every day, you take countless, thoughtful, and tiny actions that help you gradually realize your dreams. Additionally, you receive rewards by overlaying short- and long-term financial goals.