If you’re looking to steady the ship in the short and long term when it comes to your financial situation, one of the most important things to do is to set smart financial goals to work towards. But how does setting financial goals help, exactly?
Well, if you have nothing to work towards, it’s easy for things to go off the rails to one degree or another. You could find yourself spending too much money, you may have a really difficult time saving money consistently or effectively (if at all), and you may not be able to generally improve your financial situation. On top of these things, what do you do if you find yourself needing to deal with a financial emergency? And what state will your finances be in when you get to the point in your life where you want to start considering your retirement? Will you be set up financially to deal with either of these situations?
Ultimately, when you take the time and make the effort to plan things out, the pains you take can help to improve your ability to handle the financial issues that you may come across and may put you in a comfortable position down the line.
While it can be easy to grasp the importance of setting financial goals, it can be hard to know where to start if you’re at ground zero. With that in mind, we’re going to break down some short and long term financial goals examples that you may want to think about working towards.
1. Build an Emergency Fund
An emergency fund acts as a safety net for unexpected expenses and can help you to avoid taking on extra debt. Ideally, it should contain enough funds to cover at least a few months of living expenses, but this can vary based on a few different variables, like your employment situation, your household income, your household expenses, and more.
This fund can help to cover things like emergency medical expenses, unexpected home repairs, and emergency car repairs. Having said that, you’ll need to figure out what constitutes an emergency to you based on your personal situation.
It's important to keep your emergency fund in a separate, easily accessible account, like a high-yield savings account or a money market fund, so you can access the funds quickly if needed.
2. Try to Pay Off your Debt
Trying you may have taken on as fast as possible is an important financial goal to work towards. Accumulating high-interest debts, like from your credit cards, can add some serious financial burden to your plate. The longer you carry this debt, the more you'll likely end up paying in interest charges.
To minimize the impact of debt on your finances, you can prioritize paying off debt with the highest interest rate first, while still making minimum payments on other debt. Alternatively, you can start to pay off your lowest debt account first and then move onto your next lowest, and so on and so forth. These quick wins can help to keep you motivated throughout the debt repayment process.
3. Build a Retirement Fund
Retirement planning is an important financial goal to work towards in order to secure your financial future. The earlier you start saving for retirement, the more time your money has to grow through compound interest. Consider contributing to an employer-sponsored 401(k) plan, an individual retirement account (IRA), or a taxable investment account. Aim to save at least 10% to 15% of your income for retirement, and do your best to increase this amount as your income grows.
4. Creating a Budget
In simple terms, a budget is a tool that helps you track your income and expenses and ensures that you're saving enough for your financial goals. To create a budget, start by listing all of your monthly income sources, including your salary and whatever other streams of income you may have. Next, list all of your monthly expenses, including bills, food, transportation, and entertainment. From there, you can identify areas where you can cut back and make sure you're saving enough for your goals. Review your budget regularly and make adjustments as needed.
We should also point out the steps we just went over are the bones of the basic type of budgeting, but there are all sorts of different budgeting frameworks out there that can help you to accomplish your long and short term financial goals. Take a look at our ultimate budgeting guide to learn more about a few of these.
5. Save for Short Term Financial Goals
In addition to long term financial goals like retirement, it's important to have short term goals that you're working towards. This could include saving for a vacation, or a new car. Having specific, measurable goals can help you stay motivated and on track. Consider setting up separate savings accounts for each goal to make it easier to track progress and avoid dipping into your savings for other expenses.
Investing can be a great way to grow your wealth over the long term. However, it's important to understand the risks involved and to have a well-diversified portfolio. Consider working with a financial advisor to create an investment plan that meets your goals and risk tolerance. This may include a mix of stocks, bonds, and other investment options.
7. Purchase Insurance
Insurance is an important aspect of a solid financial plan. It protects you and your loved ones in case of an unexpected event, such as a disability, illness, or death. Consider purchasing life insurance, disability insurance, and health insurance to ensure that you and your family are protected. Make sure to review your insurance coverage regularly to ensure it still meets your needs.
8. Establish Healthy Financial Habits to Impact your Credit History
Building a strong credit history is an important financial goal to work towards because it can affect your ability to qualify for personal loans and credit cards, and can also impact the interest rates and terms you'll qualify for in some cases.
To potentially impact your credit score, you should make sure to pay your bills on time, keep your credit card balances low, and avoid applying for too many new credit accounts in a short period of time. Additionally, it's a good idea to check your credit report regularly and dispute any errors you find.
9. Plan for Estate and Legacy
Estate planning is the process of preparing for the distribution of your assets after you pass away. This includes writing a will, creating a trust, and designating beneficiaries for your retirement accounts and life insurance policies. Estate planning also involves considering tax implications and ensuring that your loved ones will be taken care of. Having a well-thought-out estate plan can provide peace of mind for you and your loved ones.
10. Stay Educated About Personal Finance
Ultimately, staying informed about important personal finance topics is a key component to making informed decisions about your money. Read books, articles, and blogs about personal finance, attend financial workshops and seminars, and consider working with a financial advisor. By continuously learning about personal finance, you can make informed decisions that will help you achieve your financial goals and secure your financial future.
Focus on Smart Financial Goals
We realize that the list we just went through isn’t necessarily short, and there’s a lot of information to digest. If you’re relatively new to setting smart financial goals, the idea of working towards all these new outcomes might seem overwhelming. But before you start to panic, keep these two things in mind.
For starters, you or anyone else shouldn’t have unrealistic expectations. When it comes to setting financial goals, you shouldn’t strive to accomplish these things overnight. The main aim is to have a set of targets to aim your long and short term efforts at. Of course, some of your short term financial goals are likely going to be things that you hope to achieve earlier than some of your other ultimate goals, but generally speaking, a lot of these things are probably going to be lifetime pursuits.
Next, it’s also important to keep in mind that a lot of the examples of financial goals we’ve listed are things that are going to be woven together. By working towards one, you may automatically be making progress towards another. For example, if one of your goals is to lower your spending by whatever amount, you may be able to do this by making more room in your budget for savings by paying down more of your debt.
In the end, regardless of the specific financial goals you decide to work towards, always put your best foot forward and maintain your focus, your hard work, and don’t be too hard on yourself if things don’t immediately go to plan. We all make mistakes and stumble on occasion, so just do your best to get back up when you fall down!