Set Financial Goals
“Good fortune is what happens when opportunity meets with planning.”
—Thomas Edison
“Just because you made a good plan,
doesn’t mean that’s what’s gonna happen.”
—Taylor Swift
“If you don’t know where you are going, you’ll end up someplace else.”
—Yogi Berra
Each of these quotes contains a bit of wisdom (and some humor) about the importance of planning. And since all plans require some financial resources to get them done, all planning is, in essence, financial planning. Here are some suggested steps on how to make—and stick with—your important life goals.
Step 1: Know Your Relationship to Money
What motivates you about saving and spending money? Are you a “saver” or a “spender”? What experiences from your family history and during your younger years helped to shape your attitudes about money? Before you launch into any serious financial planning, it would be vitally important for you to “know thyself” when it comes to money. Otherwise, you won’t know the emotional triggers that cause you to make bad financial decisions. Once you know these triggers you can overcome them. To get started, check out our module “Learn Your Money Personality.” Once you do that, you can move to step 2.
Goal Setting Steps
Step 2: Think Big
We should point out that this process is not something that can be done in an hour while you’re scrolling through social media. You need to set aside quiet time to plan. It will probably take several sessions over many days or weeks. Plus, this is not a one-and-done exercise. As years pass, your priorities and values may change, and so too does your plan.
One way to start is to brainstorm all the things you want to accomplish in your life. By brainstorming, I mean writing down any goal that comes into your head; no editing or deleting. Save that for later. Make yourself a cup of coffee or tea (or some other favorite thought-generating beverage), find a quiet and comfortable spot by yourself and just write. Some people find it helpful to get a dedicated journal just for goal setting. Folks who are more visual flip through magazines and cut out images representing their dreams. Some even attach these images to a “vision board” to hang by a desk or in a bedroom to keep their goals in view every day. Find a system that works best for you.
Step 3. Narrow the List
Now is the time to edit and organize. Identify your highest-priority goals. We’d recommend having no more than 5 high-priority goals. Everything can’t be a priority, right? Plus, if everything is most important, then nothing is.
Step 4. Get Specific
People often fail to achieve their goals because they are too vague. “I want to get out of debt” is a great idea but too general to take specific action on. After all, the whole point of planning is to actually do things—new behaviors, new habits—that make your goals a reality. A better goal would be “I will eliminate all credit card debt in two years.” That’s better. You’re focusing on one thing (credit cards) and putting a date for achieving it. If you have several credit cards, you should go one step further and set goals to pay down each one by a specific date. See our “Paying Off Credit Cards” module for details on how to do that.
Step 5. Set a Deadline
Each goal should have a reasonable deadline. In our credit card example, it would be nice to pay off your credit cards in three months, but that would be nearly impossible to achieve, especially if you have thousands of dollars in debt. Here’s an example of how to set an achievable deadline.
Let’s say you have $3,000 in credit card debt and you earn $3,000 per month after taxes. If you follow our 20-50-30 rule (see “How to Save Money”), your spending plan will be like this:
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Savings: 20% or $600
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Needs: 50% or $1,500
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Wants: 30% or $900
Some of your savings should go to an emergency fund, so let’s put $100 there. That leaves $500 to pay off your credit cards. How long would it take to pay them off?
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$3,000 of debt ÷ $500 in savings per month = 6 months
So, your goal would be to pay off your credit card debt in 6 months.
Here’s a handy list of some financial goals and suggested timeframes to achieve them.
Short-term Goals (up to 2 years from now)
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Build an emergency fund
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Establish and maintain a spending plan (budget)
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Eliminate all high-interest debt (credit cards, payday loans, etc.)
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Invest in your education and/or build new skills
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Put down a deposit on an apartment lease
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Buy a new kitchen appliance or make a home renovation
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Save for a vacation
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Buy birthday or holiday gifts
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Buy a car
Medium-term Goals (3-9 years from now)
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Pay off student loans
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Improve credit score
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Save for the down payment on a house or condo
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Launch a business
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Save for a wedding
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Traveling or experiencing new opportunities
Long-term Goals (10+ years from now)
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Pay for a child’s college education
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Become financially independent
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Save for retirement
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Save for long-term care
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Create an estate plan for heirs and charitable giving
Examples of Goals
Step 6. Monitor Your Progress
As we said, this is not a one-time exercise. You’ll need to review your goals regularly: short-term goals each month, and long-term goals once or twice a year. For the medium- and long-term goals, it’s a good idea to set interim milestones to see if you’re on track. For example, with retirement savings, search online for “retirement savings goals by age” and you’ll find websites that offer suggestions on how much you should have saved by a certain age. For example, some suggest that by age 30 you should have saved an amount equal to your gross annual salary, that is, before deductions.
By following these steps you’ll lay a solid groundwork for financial success and develop habits that will benefit you throughout your life. Starting early will help you build a secure financial future and make your dreams a reality.
Action Plan
A good first step toward setting your financial goals is to write down your life goals. There are lots of ways to do this depending on your personal style and preferences. If you're a visual person, you can create a Vision Board—images representing your goals: a picture of your dream house, images from places you want to visit, etc. If words are your preferred medium, keep a Life Goal Journal with lists of all the things you want to accomplish. And keep in mind that this is not a one-time exercise. As you age you'll have new goals and dreams and you'll want to document your plans.
Once you've come up with your list (or collection of images), assign a date when you want to accomplish them—short-, medium-, or long-term. You might be amazed at how motivated you'll become to achieve them all!