Many people look to the new year as a time to set goals for themselves, but often those aspirations don’t involve details about their finances. They might have a goal to lose weight and get in shape, read more books, take a course to improve their skill set, or even find a new job –– but fail to implement a plan for their money.
Maybe that’s why so many people struggle with their finances year after year.
When you really take time to consider what it is that you’d like to accomplish and develop a strategy to get there, you’re much more likely to achieve the results you’re looking for. That’s why it’s critical to create financial goals. It’s not enough to just say that you want to be wealthy –– you have to develop a plan to accomplish it.
Money is an intimidating topic for many people, so let’s break down some examples of money goals that you can adopt this year, as well as the steps to take to accomplish them.
Understanding What Money Goals Are
Money –– or financial –– goals are simply the things that you want to achieve with your finances. These goals will vary widely from person to person and there is no right or wrong goal. Some examples might be, to get out of debt, begin investing in stocks, save for a child’s college education, or to buy a home. It’s simply the things you’d like to accomplish with your money.
Like any other kind of goal, financial goals will help guide the decisions you make with your money and provide something to aim for. Money impacts so many areas of our life, so if you can get your money right, you’ll put yourself in a position to achieve so much more in your life.
Money goals are usually broken down in three different ways: short-, mid-, and long-term financial goals. Short-term goals are the easily attainable things that you’d like to accomplish within 3-12 months. Mid-term goals take longer, require more planning and patience, and can reasonably be accomplished in 1-3 years. Finally, long-term goals are any goals for your money that will take longer than 3 years to achieve.
The Importance of Setting Financial Goals
The reason it’s so important to make a plan for your money is that the goals you set provide a guide to how you’ll manage your money on a daily, weekly, and monthly basis. If you’re laser-focused on finally getting out of debt, for example, then you won’t waste money on purchases that don’t help you achieve that goal. As long as you’re committed to the financial goals you set for yourself, then they can be viewed as new, positive drivers of behavior.
Top Financial Goals
If you’re motivated to get your finances in order and start setting some money goals, but just not sure where to start, consider the following as some examples of goals that you can begin to set for your finances.
Create A Financial Plan
A financial plan isn’t some vague notion reserved for the wealthy. It’s literally a plan you put in place to help you achieve your financial goals. A financial plan incorporates all aspects of your life, such as marital status, kids, charitable donations, career goals, etc. At its essence, it’s a roadmap. And no, you don’t need to pay thousands of dollars to a financial advisor to create a financial plan. You can develop your own financial plan using the same process as professionals. Always start a financial plan by deciding what you want your life to look like within a certain timeframe, for example, “In ten years…” That kind of clarity will be the guide to helping you develop the type of financial plan that will support the life you want to live.
Develop a Budget
The absolute first step to setting money goals and developing a financial plan is to get proficient with managing your money. That means creating a monthly budget, and setting this as one of your goals will be an important way to achieve many of your other goals. Don’t think of budgeting as something that limits you, but rather, as a tool to simply keep track of cash flow. No business could operate without one, and neither should you. There are many ways and resources for creating a budget, whether it be spreadsheets, printables, cash envelopes, or online platforms and apps. Don’t get complacent with your budget either. Make a habit of reviewing your income and spending on a weekly basis, so you’re crystal clear about where your money is going, and ultimately, if it’s helping you achieve the goals you’ve set.
Set Up An Emergency Fund
One of the more important goals you should consider for setting for your finances is to create an emergency savings fund. Having money that you’ve allocated solely for meeting unexpected expenses is the first step in avoiding costly setbacks, such as an expensive auto repair that gets charged to your credit card. Ultimately, emergency savings should have 3-6 months of living expenses. If you can set aside a year’s worth of expenses, even better. Of course, if you’re just getting started, that can seem impossible, so start small, and build over time. This is a great example of setting some short-mid-long-term goals. For example, a short-term goal of $500 in emergency savings within 3 months, then $1,000 in 6 months as a mid-term goal, would be great if you’re just getting started. Then you’ve accomplished those goals, and set yourself to be able to meet an unexpected expense, should it arise.
Work to Become Debt-free
For anyone on the path towards financial freedom, an absolute goal should be to become debt-free. Being saddled with debt is one of the greatest hindrances to accomplishing your financial goals. Large, revolving accounts of unsecured debt, such as credit cards, is especially troublesome, as it becomes a never-ending spiral of payments as a result of interest charges. Being free of debt is a game-changer for your finances, as it gives you options and allows you to accomplish so many other money goals. Consider paying off your debt a priority. Start with high-interest, unsecured debt such as credit cards, medical bills, and personal loans. Once you’ve wiped those out, move on to lower-interest debt such as student loans, or if you’re really ambitious, your mortgage!
For many, debt seems like an insurmountable obstacle. It doesn’t have to be. There are strategies such as the debt snowball or debt avalanche that you can utilize to develop a strategy to wipe out your debt. For others, there is professional help available. Whatever route you choose, making paying off debt a goal will benefit you long-term.
The new year is a perfect time to take control of your financial life and the best way to do that is to set some money goals and develop a plan for your finances. In this post we’ve covered creating a financial plan, developing a budget, setting up an emergency fund, and working to eliminate debt. In part two, we’ll identify some more top money goals for you to consider for 2021.