When Benjamin Franklin said, “If you fail to plan, you are planning to fail,” he wasn’t just talking about preparing for life’s daily tasks — he was also addressing something deeply relevant: financial goals.
Whether saving for a new car, building an emergency fund, or securing your retirement, clear objectives and reasonable financial goals can completely transform your relationship with money.
Setting reasonable financial goals can be incredibly powerful if you’re struggling to manage your finances or simply want to improve your financial situation. In this post, I’ll share some simple, practical tips to help you do that.
Key Takeaways
- Focus on saving a significant portion of your income by cutting back on unnecessary expenses and lifestyle upgrades. This approach builds financial stability and brings long-term rewards.
- Investments in stocks, real estate, and other assets secure your future and create a legacy for future generations.
- Adequate financial and retirement planning begins with setting goals for the short term, the medium term, and the long term.
What Is A Financial Goal?
When it comes to finances, saying, “I’ll deal with it later,” rarely works. Financial goals are goals you plan to achieve over a specific period. Setting monetary goals helps prioritize essential expenses and regulate spending habits.
Financial goals are generally categorized into three stages: short-term, medium-term, and long-term, depending on your current life stage and future priorities.
For instance, a high school student might be focused on saving for a summer trip, a new laptop, or their first car. Retirement savings, for example, may be distant. In contrast, someone with a growing family might have long-term goals like saving for their children’s college tuition or building an emergency fund.
Benefits of Financial Goals
Here are some ways in which setting a financial goal can be of importance to you;
- Setting financial goals promotes accountability and instills a sense of discipline, helping you become more intentional about your spending.
- Financial goals encourage saving and investing, which can lead to greater independence over time. For example, committing to invest $200 monthly in an index fund can lead to significant growth over a decade.
- Working toward your financial goals also helps you understand your relationship with money. You start to figure out what’s important to you—feeling secure, living comfortably, or achieving independence—and how you can manage your money to get there.
- Reaching your financial goals gives you a sense of accomplishment beyond just the money. It can be satisfying to achieve significant financial milestones, such as paying off your debts, saving for a dream vacation, or purchasing a home. Now that we know how important financial goals are, let’s talk about the various types of financial goals you can set;
Types of Financial Goals
Money goals come in different categories depending on the reasons and the time you hope to achieve them.
Short Term Goals
These smaller, manageable goals can often be completed within a year. They may also serve as stepping stones for larger objectives. What are some financial goals in this category? Saving for a wedding, getting a new TV, or saving for concert tickets. For instance, if you want to buy a new TV costing $800, you can save $100 monthly for eight months to achieve this.
Medium-Term Goals
This usually takes about 2 to 5 years. Examples of this type of financial goal include:
- Saving for an initial down payment for a house.
- Saving to start a business.
- Renovating a home.
- Purchasing a new car.
- Saving for an international family vacation.
If you want to buy a $5,000 car within 2 years, set a goal to save $208 per month, and by the end of 2 years, you will have saved enough to get your dream car. Saving for a car isn’t merely a purchase—it can influence long-term financial goals like building your credit for a home loan.
Long Term Goals
A long-term financial goal is ideal if you aim to achieve a goal that requires years or even decades of financial commitment.
This time is perfect for securing your financial future, such as planning for retirement to ensure you can maintain your desired lifestyle after you stop working.
Tips on How to Set Financial Goals
With clearly articulated goals, you will get ahead financially. Follow these practical tips to start your journey to financial freedom.
Have Specific Goals
Be intentional about your goals. People fail with financial goals because they need to be more precise. To achieve your financial goals, be specific. Instead of saying, ‘I want to be better with money,’ set clear objectives like ‘I want to save $5,000,’ ‘I want to reduce debt by $2,000,’ or ‘I want to track spending for three months.
Create a Budget
To create an adequate budget, you first need to track your expenses. Decide whether to track them manually (using a spreadsheet or notebook) or digitally (through budgeting apps like Mint, YNAB, or PocketGuard). Then, categorize your expenses into three main groups:
- Fixed expenses (like rent, utilities, and car payments)
- Variable expenses (such as groceries, entertainment, and dining out)
- Savings or debt repayment (including retirement contributions and emergency savings). This will help you curb unnecessary spending on irrelevant things.
You can also use budgeting apps like Honeydew, Every Dollar, Personal Capital, or a simple spreadsheet to get a clear and detailed picture of your spending. This will help you set realistic goals based on your current financial habits.
Break Down Large Goals into Smaller Milestones
With most big financial goals, starting small and building as you go is better. Setting a huge financial goal, such as clearing $250,000 in credit card debt in a year, would be easy if you earn more than $100,000 annually. Instead, consider breaking your goals into smaller portions. For instance, clearing $15,000 in a year might be more achievable.
Set Realistic Timelines
While it’s essential to be ambitious, ensure your goals are achievable within a reasonable timeframe. Consider your present financial status, income, and current earnings to decide whether a five-year or ten-year plan is more realistic.
For example, if you’re trying to pay off debt or save for a big purchase like a house, you should examine your monthly income and spending closely.
Then, make a budget that allows you to invest in your goals without making it too difficult to cover your everyday expenses. Now, what are examples of long-term financial goals?
Examples of Financial Goals
When you set financial goals, they should be specific (clear and well-defined), measurable (quantifiable so progress can be tracked), achievable (realistic and attainable), relevant (aligned with your broader goals), and time-bound (with a clear deadline), also known as SMART. This structure provides clarity and direction, helping you stay focused and motivated as you track progress toward your financial objectives.
Here are some examples of financial goals:
1. Save for a House
Buying a property is a significant financial goal that often requires long-term planning. One aspect of this goal is saving for a down payment and covering the various fees.
Here is an example of a SMART Goal when saving for a house:
- Specific: Save $50,000 for a 20% down payment on a $250,000 home.
- Measurable: Track monthly savings contributions and monitor the growing savings balance.
- Achievable: Set a realistic monthly savings goal by saving a certain percentage of your salary, ideally between 10% and 20%.
- Relevant: This goal aligns with the long-term homeownership and financial security goals.
- Time-bound: Aim to reach the $50,000 savings goal within a reasonable time frame, such as three years.
2. Save for Retirement Plan
To enjoy your golden years in comfort and luxury without worries, you must start saving ahead. Saving for retirement is a perfect long-term financial goal example and something you can work toward throughout your life. While saving for retirement may not offer immediate gratification, it is a prudent long-term economic strategy that can improve your future quality of life.
Here’s how to approach saving for retirement:
- Specific: Save $10,000 per year for retirement.
- Measurable: Track monthly contributions to your retirement account.
- Achievable: Allocate 15% of monthly income to retirement savings.
- Relevant: Aligns with long-term financial security and retirement goals.
- Time-bound: Aim to reach a $250,000 retirement savings goal by age 60.
3. Pay off Credit Card Debt
Paying off debts gives you complete control of your financial life, and it’s an incredible feeling to be debt-free.
Having SMART financial goals makes it easier to tackle debt and increases one’s credit score.
Remember that the better your credit score, the less you’ll pay interest. A good credit score can save you thousands of dollars on a significant purchase.
Here’s an example of SMART’s financial goal to pay off $50,000 in credit card debts:
- Specific: Pay off a total of $50,000 in credit card debt.
- Measurable: Track monthly payments, interest rates, and balances for each credit card.
- Achievable: Create a realistic budget to allocate extra funds towards debt repayment.
- Relevant: Prioritize debt repayment to improve financial health and reduce long-term interest costs.
- Time-bound: Aim to pay off the debt within a desired timeframe, e.g., 3 years, 2 years, etc.
4. Starting an Emergency Fund
Financial emergencies like losing your job, car breakdown, home accident, or natural disaster often happen sometimes when you least expect them to. A lack of financial cushion leaves people vulnerable to unexpected events. That’s why experts advise you to put away at least three to six months’ expenses as an emergency fund, depending on your lifestyle.
For example, here’s a SMART plan to build an emergency fund as someone who earns $5,000 monthly:
- Specific: Build an emergency fund of $15,000.
- Measurable: Track monthly contributions to the emergency fund.
- Achievable: Allocate 10% of monthly income ($500) to the emergency fund.
- Relevant: This fund will provide a financial safety net for unexpected expenses.
- Time-bound: Aim to reach the $15,000 goal within 30 months.
5. Starting a Business.
Becoming your boss is a goal that many aspire to achieve. However, before embarking on this entrepreneurial journey, the first step is to define the financial target required to launch and sustain your business. successfully
This means calculating how much capital you’ll need for startup costs.
For example, suppose you plan to start a coffee shop. You should save for the lease, renovations, equipment like espresso machines, branding and marketing materials, and any required legal fees or licenses. Here’s a SMART plan to save for a coffee shop
- Specific Goal: Save $20,000 to cover initial startup costs, including lease, renovations, equipment, inventory, and marketing.
- Measurable Goal: Save $834 per month for 24 months. Track monthly savings and adjust as needed.
- Achievable Goal: Create a realistic budget after identifying areas where you can cut back on expenses (e.g., dining out, entertainment, subscriptions) to free up funds for savings. Explore opportunities to earn extra income through freelancing, tutoring, or selling products online.
- Automate savings: Set up automatic monthly transfers from your checking account to your savings account.
- Relevant Goal: Align savings with long-term financial goals: Ensure that saving for the coffee shop doesn’t jeopardize other critical financial goals, such as retirement or emergency funds.
- Time-bound Goal: Save $20,000 within 2 years.
Setting and reaching financial goals is a great way to take control of your future. The key is to start small. The key is to start, no matter how small.
Progress won’t always be perfect, and unexpected challenges may arise. For example, if, after painstakingly saving for years, you have a health challenge that requires using part of your emergency funds, don’t hesitate. Once the situation stabilizes, refocus on your goals and continue making progress. Remember, small, consistent steps today pave the way for a financially secure tomorrow.