January 2019 Issue
I talk a lot about setting financial goals, primarily because I believe in them. Having an idea of what you want to achieve is the first step in actually doing something. That’s particularly true when it comes to money. And what better time to focus on your financial goals than the start of a new year?
To me, setting goals can actually be the fun part of getting on top of your finances. Why? Because it’s a chance to evaluate your priorities and maybe dream a little. For instance, what are the most important things you’d like to achieve in both the near and distant future? Do you dream of buying a house, or starting a new business? What’s on your travel bucket list? Do you imagine switching to a less lucrative but more fulfilling career path?
It’s exciting to think beyond
your day-to-day issues and set
your sights on larger goals.
But it takes more than dreaming to reach those goals. It takes a process—first for defining them, then for achieving them. That’s the truly satisfying part. Here are some ideas to help you get started.
It may sound basic, but it works. To turn dreams and ideas into real goals, write them down. Not only will it help you think concretely, it will be a motivation, and will ultimately provide the framework for a plan of action.
One caveat as you get started: It’s no fun to work toward something that will always be out of reach, so make sure the goals you write down are specific and attainable. Here’s what I suggest:
Write down one primary short-term goal. For this goal, think one year or less. It could be something as fundamental as building up your emergency fund or eliminating credit card debt. It could be something personal like buying a new computer or even a car. Just make it something you could actually accomplish in the short term.
Write down one primary medium-term goal. Now think three-to-five years. Maybe it’s the down payment on a house or a family vacation to Europe. Whatever it is, be realistic. Five years can go by pretty quickly.
Write down one primary long-term goal. Finally, it’s time to think ten years or longer. For many people this could be a child’s college education, or early retirement, or you name it! This is the big goal, but don’t get too carried away. Again, you want to make sure it’s attainable.
Of course you may have multiple goals, but start with one in each category. You can always add more as time goes on, or change your goals as your life circumstances change. The main point is to work toward something tangible that you can actually achieve within a certain period of time.
Now figure out what each goal is going to cost. Don’t just guesstimate. Do a little research and get some real figures. Because after you decide the dollar amount you need to reach a goal, you then have to decide how you’re going to budget for it. Here’s where reality kicks in.
How much will you need to save monthly for each goal to reach it within your timeframe? How much can you realistically afford to put toward each goal? You may discover that you have to reprioritize your spending or rethink your timing. But whatever the situation, you’ll have something real to work toward.
Once you’ve determined how much you can contribute toward each goal, make it easy on yourself by putting your savings on automatic. You might even set up separate accounts that are designated for specific goals and have money deposited monthly from your checking account to the designated savings or brokerage account.
And speaking of accounts, remember that money you’ll want to use within three-to-five years is best kept out of the stock market. It’s wise to consider investing at least some of the money for long-term goals such as retirement or a child’s education in the stock market to attempt to keep up with inflation. But for that down payment or vacation, best to keep your money in something more secure and easily accessible such as a money market account or short-term CD.
Whether they’re large or small, to achieve your financial goals you can’t just set them and forget them. Check in regularly to see how you’re doing (the shorter the time frame, the more frequently you’ll want to check in). If you’re on target, give yourself some credit. If something has set you back, figure out how you can make up the difference. Maybe you can direct a portion of a gift or a bonus toward one goal or another. Maybe you’ll need to move a goal out a bit.
There’s nothing more motivating than seeing your balance grow and knowing you’re closer to your target. And once you’ve met one goal—and congratulated yourself on your success—don’t stop there. Put that money toward your next goal or add a new one to the list. That can be even more motivating!.