Do you constantly find yourself wishing you had more money? Do you think to yourself that you will always struggle with your finances? Do you wonder how others are able to save more and give generously? Do you and your spouse disagree when it comes to your finances? I understand. I can relate. I’ve been there.
Setting financial goals is the first thing you should do when you begin your journey towards financial freedom. Set big goals. Don’t worry about how you are going to achieve them quite yet. That will come later. This is where you dream.
Dream big.
At the same time be realistic. Don’t set out to pay down $35,000 worth of debt in a year when your yearly income is $40,000. Be specific and write down your goals. This is the most important thing you can do. When you put the pencil to the paper, your goals become real and you can start taking steps to achieve them. There are several reasons why it’s so important to set financial goals.
1. Keeps You Accountable
This is the most important reason for me to set financial goals. I’m the spender and my husband is the saver. In other words, I fall off track a little easier than he does. When I see our financial goals down on paper in front of me, I am more apt to stick to our budget so we can meet those goals.
2. Shows Your Progress
If you set goals, you will slowly start to see your progress, which in turn, will build up your momentum. Every time you send in an extra payment for that student loan, you will be a little closer to your goal. Every time you invest an extra $50 in your mutual fund, you will be a little closer to your goal.
You should set short-term and long-term financial goals. This will help you see what you need to do right now as well as see where you want to be in a month, a year, or 5 years from now.
3. Gives You a Finish Line
When you run in a race, you don’t run around aimlessly in whichever direction you wish. There is a starting line and a finish line. You need to know where your finish line is so that you can map out your course to get there. When you have a finish line, you have a purpose for every financial decision you make.
Once you have your goals written out, you need to break them down into bite sized pieces so they are more easily manageable. Be very specific. Don’t say,
“I want to save for a down payment on a house.”
You need to specify how much you want to save and the period of time yo want to accomplish this goal.
“I will save $30,000 for a down payment on a house over the next 5 years.”
When you are specific, you can start to break that goal down into pieces. If you want to save $30,000 over the course of 5 years, that means you will need to save $6000 a year and $500 a month.
Long Term Goals
I think its important to set your long-term goals first. These may have to be adjusted ones you begin to break them down, but this gives you the finish line you need to map out your course like we discussed above. To me, a long-term goal is anything that needs to be broken down into bite size pieces. If you have a $200 credit card bill that can be paid off in a month, this would not be a long-term goal. However, if your credit card is $2000 and you want to pay it off in 10 months, this is a long-term goal.
Short Term Goals
Short term goals are your long-term goals broken down into manageable pieces. For the example above, your short-term goal would be to pay $200 on your credit card each month so that you can reach your long-term goal of paying off the $2000 balance in 10 months.
I think its important to remember that goals mean nothing if we don’t take action. Once a goal is set, break it down and begin to chip away at those pieces until you accomplish your goal.