Your Ultimate Guide to Setting Financial Goals
Setting both short-term and long-term financial goals is a crucial step towards becoming financially secure. If you are not working towards achieving something specific, it becomes easy to spend more money than you should.
You will then find yourself in big trouble when a financial emergency comes up. This way, you may find yourself stuck in a vicious cycle of debt. To remain financially secure, you need to find a way of setting and working towards achieving your financial goals.
Setting goals allow you to plan your finances and use them prudently. However, if you have never set financial goals before, you may not know where to begin. Here are some of the basic steps to follow when setting financial goals.
The first thing you need to do is think about what you want to do and why you want to do it. Make sure you attach valid reasons to every financial goal you set to fuel your motivation.
For instance, you may decide that you want to get rid of your credit card debt so that you channel more income towards your wedding plans.
Finding inspiration and knowing why you want to do something will increase your likelihood of success.
Establish a Budget
You cannot know where you are going until you establish where you are right now. This means that you need to understand your current financial situation before you start setting goals. Create a budget and assess how you’re doing financially.
With a budget in place, you may be surprised at how much money is slipping through your pockets every month. Use a budget tracking tool and compile information from all your accounts into one place for easy analysis. You may discover that eating out with your coworkers costs you $420 a month at $20 a meal for at least 21 working days. Once you see how you are spending your money and areas you need to cut back on; you can make informed decisions.
Keep Your Financial Goals Realistic
It is always good to be an optimistic person, but being overambitious is not desirable. While it is good to keep your financial goals a little bit aggressive, being too optimistic may hurt your chances of success.
Therefore, ensure you keep your financial goals realistic since it will help you to stay on course and keep you motivated throughout the journey.
Be Clear About Your Short-Term and Long-Term Targets
It is critical to specify your short-term and long-term goals because the approach to achieving every goal will be different. Typically, any goal that is due within the next three years is considered short-term.
Any longer goals are categorized as long-term goals. The classification of your financial goals into short-term and long-term will play a crucial role in choosing the right tools to help you achieve them.
Check on Your Progress
Once you have established a clear plan and set your goals, make sure you assess your progress regularly to stay on track. Whether you have a financial advisor or manage your financial plan yourself, you need to ensure that you stay on track.
Financial planning is iterative, and it is critical to review and update the process regularly. Consider revisiting your plan annually or any time you have had a significant life event.
During the review session, sit down and take a look at both your goals and budget. Evaluate your options and adjust things accordingly. Look for changes in your income, expenses, as well as any progress in your financial goals over the past year.