What are your goals in life? Do you want to travel, go to college, start a family, retire at 40, build a business, or all of the above? Regardless of what your dreams are, reaching them usually requires careful planning and money. These five steps will help you set and achieve your financial goals.
1. Get a financial wellness check
Before you start setting goals, take a good look at your current financial health. These questions are a good place to start.
- Do you have a regular income? How long could you pay for living expenses if you lost your income?
- How much debt do you have? What interest rates are you paying?
- Are you up-to-date with your taxes?
- Do you have a budget?
- What is your net worth?
Answering these questions will give you get a better feel of your financial health and help you decide which goals to focus on first.
2. Write down your financial goals (be specific)
Dreams are vague, but goals are clearly defined objectives. Convert your dreams into goals by writing a description of what you want, when you want it by, and why you want it. Make achieving your financial goals the first step toward the life dreams you are passionate about. In fact, build it into your goal when you write down why you want to achieve your financial goal.
For example, it’s not enough to say you want to get out of debt or put money into a savings account. You must be specific. Let’s say your financial goal is to pay off your credit card debt. You could write something like this:
Remember. Whatever your goal is, include details and be as specific as possible. Are you looking for inspiration for your next financial goal? I added my top 10 list at the end of this article.
3. Create milestones and give yourself a deadline
Treat your goal like a project manager would. Set up milestones and a deadline. Milestones and deadlines are important because they create a sense of urgency and accountability that will push you forward when things get tough.
In our example, the deadline is two years in the future.
If you get paid monthly, it would make sense to divide your goal into 24 milestones. Calculate how much you will need to pay every month — in this example $489 — to cover the $10,000 debt (assuming a 16% APR). Then create a spreadsheet that shows your balance dropping with every payment. Set up reminders on your phone for monthly payment date and arrange for a big celebration for the day you’re finally debt-free.
Creating milestones also helps determine if your goal is realistic. For instance, could you afford to pay $489 a month? Do you need to get a side job or can you get by with reducing your expenses? In some cases, you may need to modify your goal so that it is achievable.
4. Measure the progress of your financial goals
Once you have set the right type of goal, you need to track your progress. Peter Drucker’s famous quote: “What get’s measured gets managed” is spot on. Too many dreams are never fulfilled because we don’t manage the progress of our goals.
Set a time for you to evaluate the progress of your goal. Every three or six months is enough for most people. Check whether you are on track to achieve your financial goal, or whether you need to make adjustments. You may even find you underestimated yourself and you can afford to set a more ambitious goal. It often helps to share your goal with a trusted friend or family member who can help you keep tabs on your progress. Having someone you care about to report on your progress could be just what you need to strengthen your resolve when it’s tempting to give up.
5. Celebrate and build on your success
Don’t view your goals as chores to be completed. Instead, view them as pit stops in a lifelong journey of adventure. Remember that financial goals are just tools to help us achieve the goals that really matter in life. Reward yourself every time you meet a milestone and achieve your objective.
Once you have achieved the most basic financial goals, such as having an emergency savings fund and getting out of high interest debt, focus on goals you are passionate about. Then work out what financial goals you need to achieve to make them a reality.
Top 10 financial goals
Here are 10 basic financial goals everyone should consider
1. Make a budget
A well-designed budget will help you plan your spending so you always have enough money for what matters to you.
2. Build an emergency fund
A modest emergency savings fund — three to six months of basic living expenses — can give you the freedom to plan ahead without worrying about being unprepared for unexpected expenses.
3. Spend less than your income
This is an obvious but important goal. Spending less than you earn will allow you to pay off your debts and invest in your future.
4. Improve your credit score
Your credit score determines whether you will be approved for a loan and what rates you pay. It can also determine whether you are eligible for a lease or how much you pay in auto insurance.
5. Pay off high interest debt
It’s usually smart to focus on paying off high-interest rate debt before you start saving and investing. It will save you money and usually lets you pay off the debt faster. Consolidating your debts into one low interest loan is a good option for those with good credit.
6. Save for retirement
It’s never too early to start saving for retirement. When you save in a retirement plan, you leverage the power of tax-deferred compounding. Your money grows faster because income that could have been taxed gets reinvested and earns even more.
7. Develop skills that will improve your income
Furthering your education is often the best investment you can make in yourself. When done right, the time and money you invest in your education translate into a higher income
8. Buy sufficient insurance coverage
If you have people who rely on you financially, you probably need life insurance. A 20-year level term life policy with a coverage of around 10 times your annual income is a good place to start. Other insurance policies you should consider are home insurance (or renters insurance), health insurance, and auto insurance.
9. Save for a house down payment
Although you don’t need a 20% down payment to buy a house, it will save you a lot of money. Not only will you pay less in interest, you also will avoid paying private mortgage insurance.
10. Save for your children’s education
The money you spend on your child’s education may be one of your family’s largest expenses. Start to save early and you can help them reduce the amount of money they have to borrow. Just remember to prioritize your retirement savings. Your children can pay for their education with student loans, but you can’t finance your retirement with loans.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.