Goals are essential to success—especially when it comes to personal finance.
In pursuit of financial freedom, our goals must be both meaningful and achievable. They must be bigger than our budgets, and more compelling than our financial circumstances.
As we head into 2023, now is the perfect time to review your financial life and set goals that truly excite and motivate you.
Ready to get started? Check out these quick tips for setting your financial goals.
What Are Financial Goals?
Financial goals constitute any money-related target that you might have.
They can include anything from buying a car, to increasing your salary, to remodeling your home, to enjoying your dream vacation, and more.
While these are all sensible dreams, they’re constrained by one stark reality: time.
Some financial goals can be achieved in a month, while others may take a year (and even an entire lifetime) to fulfill.
That’s why it’s important to break your goals into three primary groups: short-term financial goals, mid-term financial goals, and long-term financial goals.
Without this structure, it’s all too easy to get distracted on the road to financial freedom.
Short-Term Financial Goals
As the name implies, short-term financial goals can be achieved in the near future.
In most cases, they represent any objective you can complete within the next calendar year.
Individual examples vary, but short-term goals may include:
- Paying off a credit card.
- Eliminating outstanding debts.
- Increasing your salary.
- Establishing a new budget.
- Taking a family vacation.
- Getting married.
- Building (or adding to) your emergency fund.
- Saving for a home down payment.
- Investing in the stock market.
As you set your short-term financial goals, be as realistic as possible with what you can achieve. Remember, you’ll be able to outline your long-term goals later.
Be specific, and give yourself targets that you can confidently hit.
Note: keep budgeting every step of the way! Check out the 50/30/20 rule to help jumpstart your savings.
Mid-Term Financial Goals
After affirming your financial foundation, you can then begin to look further into the future.
Your mid-term financial goals are the bridge between your immediate and long-term objectives.
They come in all shapes, but mid-term goals often include:
- Buying or remodeling a home.
- Paying off your mortgage.
- Having children.
- Maximizing your earnings potential.
- Paying off student loans.
- Starting 529 college savings plans for your kids.
- Opening or expanding a small business.
- Diversifying stock market and alternative investments.
- Investing in life insurance.
In many cases, your mid-term financial goals will be achieved in the “middle” of your career. After all, these objectives are built upon the earlier successes of your short-term goals.
Fill your mid-term goals with your larger ambitions—whether they’re family-focused, career-oriented, or both.
Long-Term Financial Goals
Generally speaking, retirement is the primary focus of most long-term financial goals.
It’s the season of life where you can finally enjoy the fruit of your labor—provided you have saved enough money to retire with confidence.
Most financial advisors encourage people to save between 10 to 15% of each paycheck in a 401(k) or IRA. Though this is the general rule of thumb, each retirement strategy is unique.
To learn more about selecting and opening a retirement account, click here for our complete guide.
Beyond retirement, other long-term financial goals may include:
- Leaving the workforce.
- Buying a second home.
- Helping your grandkids pay for college tuition.
- Assisting family members with their financial needs.
- Donating to charities, churches, and other philanthropic causes.
- Volunteering in a specific community or business.
Because they are a plan for the future, long-term financial goals might seem daunting at first. Take it one step at a time, and you’ll see yourself getting closer.
Get SMART About Setting Financial Goals
Our success depends upon our outlook.
As Tony Robbins once said, “it’s not what we do once in a while that shapes our lives, but what we do consistently.”
So how can we be consistent with setting financial goals? Even when—or especially when— times are tough?
It all starts with the SMART formula that encourages us to set Specific, Measurable, Achievable, Realistic, and Time-Bound objectives.
Here’s how these five factors work:
Specific
Great goals can’t be generic. Instead, they need to be so specific that no one but you could dream them up.
It’s the difference between saying, “I want to own a home one day,” and stating, “I want to own a beach house in Malibu by the time I’m 52.”
Measurable
Effective goals must also be quantifiable. If they’re vague, you won’t be able to track your progress or identify when you’re falling short of your target.
An ambiguous goal looks like this: “I want to pay off some of my credit card debt.”
A measurable goal requires you to look closely at the numbers so you can say, “I owe $2,000 in credit card debt and want to pay it off in full.”
Achievable
As we discussed above, there are short-term, mid-term, and long-term goals.
To be successful in all three, you need to know which objectives you’re pursuing and when you’re pursuing them.
When we get too ambitious too fast, anxiety creeps in.
To return to our earlier example, the Malibu dream home would clearly constitute a long-term goal.
Conversely, the short-term goal—perhaps the more immediately relevant of the three—will look different: “I’m going to pay off my $2,000 credit card debt in exactly one year.”
Realistic
You know what you want to accomplish, and that’s great.
Now you need to figure out how to get there.
To that end, you might need to revisit your budget, cancel some recurring expenses, and maybe even pick up an extra shift or work a part-time job.
Goals are realistic when you can achieve them with the time, resources, and relationships currently available to you.
Time-Bound
If people didn’t have deadlines, nothing would ever get done.
The same goes for setting financial goals: if there isn’t a date marked on your calendar, then you have an easy way out.
Be specific not only with what you want to achieve, but when.
As with our earlier example, a $2,000 card credit debt (with an 18% interest rate) can be settled in exactly one year with twelve monthly payments of $183.
When you break it down, it quickly becomes more manageable.
Note: use Bankrate’s card credit payoff calculator to explore your options.
Moving Forward
Setting financial goals and achieving financial freedom go hand in hand.
Don’t let yourself get overwhelmed. Instead, take some time to write down your specific short-term, mid-term, and long-term goals.
Support your financial freedom dreams with specifically-structured goals, and no one will be able to stop you. Trust that the process will yield powerful results
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