People who have a financial plan in place are far more likely to pay bills on time, have an emergency fund, and feel financially stable.
Research has shown that goal setting is essential to being successful in any area of life, including financially. But it is not enough to simply set goals; you need to make sure that you are setting the right goals, that you are tracking your progress, and that you are taking the necessary steps to prepare for success.
Goals give you something to work towards and help you stay motivated. Saving money and planning a secure financial future is difficult. It takes sacrifice; you can’t buy everything you want and you may have to work harder to generate additional income. Unless you have a clear reason for these sacrifices, you are less likely to be able to do the hard work it takes to achieve great things in the long run.
Without specific goals, it is far too easy to get caught up in bad habits instead of being persistent in achieving those big goals. However, once you have a specific financial goal, you are more likely to maintain the good habits necessary to achieve it. You can track and measure your progress, and you will stay motivated because reaching your goal will be necessary for you to be satisfied with your financial life.
In general, objectives are classified according to the time required to achieve them. Your financial goals are no exception. You can plan financial goals, short, medium and long term.
Short-term goals are achieved within a year. These could be an annual vacation, buying new furniture for your house. Paying off a credit card balance, or purchasing a new iPhone, for example.
Medium-term goals can be achieved between 1 and 5 years. Examples are buying a new car or going to grad school.
Long-term goals will be attain in more than five years. These include buying a house or planning for your retirement.
In long-term financial planning, the available monthly amounts must be invested for more than five years to obtain a considerable income. Due to the economic changes that can happen during that time period, planning must always be updated.
Obviously, buying a vehicle is not necessarily a medium-term financial goal. You may have the resources to purchase it in a few months. So this can be a short term financial goal for you.
Knowing that you should have financial goals is not enough to make sure you are pursuing the right ones. It is also important that the goals set are effective. You need to motivate yourself to change your behaviour and focus on achieving your goals.
Good intentions are not always enough to achieve your goals. Hence the importance of setting specific goals. There are several methods to define them well. One popular method is to create SMART goals, which stands for specific, measurable, attainable, relevant and time-bound:
The objective must be clear and precise. For example, you can replace “I would like to take a vacation soon” by “I am saving a specific amount of money for vacation and I am leaving next March.”
Setting specific goals is important so that you know exactly what steps to take to achieve them.
SThe specificity gives you something to work towards. You can easily track your progress, and you can motivate yourself to cut certain costs or take on a part-time job, for example, to increase your income to help you achieve that goal.
We must be able to measure our goals. For example, instead of “I have to pay off a good chunk of my debt this year,” say “I will reduce my debt by $ 5,000 by December 1.”
Making your goals measurable is important for many reasons. For example, it’s easier to stay motivated and measure success when you can see that you are making progress.
Objectives must be achievable. While you can and should push yourself, you don’t want to make your goals. so unrealistic that you have no hope of attaining them. If your goals seem unreachable, you are less likely to try at all. If you keep failing to achieve such ambitious goals, you might think that realizing your financial dreams may be hopeless. That, in turn, would cause you to just give up and resume bad financial habits.
Your plans should also be realistic. For example, if a goal requires you to reduce your expenses beyond a sustainable level, your plan will likely fail.
You will only be motivated to achieve your goals if they are important to your life and you care about achieving them. Unless buying a home is important to you, it doesn’t make sense to set a goal for a down payment because you won’t be thrilled to see the down payment account grow.
Each goal must be defined over time by a duration, a schedule and a completion date. If you don’t set a deadline for when you want to reach your goal, you’re much less likely to work aggressively towards it when you have to make sacrifices. Setting a deadline for meeting goals can also help you make those goals more specific and easier to measure progress.
These methods are intend to help you set your goals. When it comes to your personal finances, it is important to remain flexible and careful in your commitments. You need to be able to adjust your budget if your circumstances change.
To properly plan for a financial goal or upcoming major expense, you need to estimate the total amount including all related costs. Then, divide that amount by the number of months you have committed to reaching your goal.
To save this amount, deposit it in a bank account that is separate from your transaction account for easier management (a savings account, for example). By determining a single short-term goal that is specific, realistic and achievable, you are putting the odds on your side of achieving it.
For longer-term financial goals, once the total amount of the financial goal has been calculate, a trick to assess its viability is to save the amount planned monthly for 3 months. If, during this period, you manage not to touch this sum and your budget is not out of balance, it is a sign that your financial goal is realistic. Otherwise, rethink your financial goal downwards.
Among all your financial goals, you must set priorities. What is the financial goal or goal you want to achieve above all? It is by making your budget forecasts that you will plan all of your objectives and priorities.
Setting short-term financial goals can give you the confidence and basic knowledge you need to achieve bigger goals that will take longer.
Here are some short-term financial goals that will begin to help you achieve long-term goals:
You may be shocked at how much money you are spending on small expenses. An easy way to track your spending is to use a financial budget. With this monitoring, you will be able to gather all your account information in one place and will allow you to identify each expense by category. You can also create an old-fashioned budget by going through bank statements and invoices from the past few months and categorizing each expense by writing on paper. Learn more about budgeting with GuardianWealth.
An emergency fund is money that you set aside specifically to pay for unexpected expenses. Once your immediate emergency savings goal is reached, you should expand it so that your fund can cover greater financial difficulties, such as unemployment. It is recommended to save at least three months of expenses to cover your financial obligations and basic needs, but preferably six months.
Another good tip is to open a savings account and set up an automatic transfer that you have determined that you can save each month (using your budget) until you reach your emergency fund goal.
While you probably have other financial goals and objectives. such as saving for retirement, creating that fund should be a top priority. It is the savings account that creates the financial stability you need to achieve your other goals.
Credit card interest is very high and can complicate your path towards established financial goals. Pay those bills in full and escape the snowball before it gets in the way of your planning.
After creating a budget, establishing a emergency fund, and paying off your credit card debt, or at least making progress toward these three short-term goals, it’s time to start working toward medium-term financial goals and objectives.
Medium-term goals will create a bridge between your short and long-term financial goals.
Term life or death insurance is the cheapest type of insurance and will meet the needs of most people. An insurance agent can assist you to find the fairest price on a policy.
Most life insurance requires a medical evaluation and, unless you are seriously ill, you will probably find at least one company that will offer you a policy.
Disability insurance will replace part of your income if you become seriously ill to the extent that you are unable to work. It can provide a greater benefit than the Social Security disability income, allowing you and your family to live more comfortably in the event of loss of productive capacity.
Medium-term goals can also include goals like buying a home. Or maybe you already have a house and want to renovate it.
Other examples of medium-term goals are affording college tuition for your children or grandchildren, or saving for when you have children.
You may even want to do all of those things. However, keep in mind that working on many medium-term goals at the same time requires more detailed planning.
Once you’ve defined your goals, let GuardianWealth help you determine how much you need to save towards them today.
The biggest long-term financial goal for most people is to save enough money to retire.
The common rule that you should save a minimum of 10% to 15% of each salary. Check-in a retirement account is a good first step.
But to make sure you are saving enough, you need to find out how much you need to retire.
For most people who have an employer-sponsored retirement plan, the employer will contribute a percentage of what you pay.
This can correspond to 3% or up to 7% of your salary. You can get a 100% return on your investment. This is the most important step to take to fund your retirement. Start saving for retirement today with GuardianWealth.
You are unlikely to make perfect, linear progress towards achieving your financial goals and objectives. But the important thing isn’t perfection but consistency.
If you are hit by something unforseen for a month and cannot contribute to the emergency fund and have to take money from it, don’t stress. That’s what the fund is there for. Just revisit your target as soon as possible.
The same is true if you lose your job or become ill. You will have to create a new plan to overcome this difficult period. You may not be able to pay debts or save to retire during this period. But you can resume your original plan, or perhaps a revised version when you get through tough times. That’s the beauty of financial planning! You can review and update your financial goals and objectives and monitor your progress in reaching them during the ups and downs of life. In the process, you will find that both the little things you do daily and the monthly fees and the big things you do every year and over the decades will help you achieve your financial goals. Start saving for your financial future today with GuardianWealth.