When you embark on a trip, the first thing you do is map out your journey towards your destination. In the same way, when you begin the journey of taking control of your finances, you must figure out where you want to go. Financial goals are keys to determining this. There are three types of financial goals: short term, mid-term, and long term.
When mapping out your journey, you want to make a list of your various financial goals. Short–term goals are those that can be completed in one month to one year. Mid-term goals are those that can be completed in one to five years, while long-term goals are those that can be completed in five years and longer. After listing your goals, you want to set a date or deadline to achieve each target. This will assist you in integrating your goals into your monthly budget.
The following are examples of the three types of goals:
1. Short Term Goal – Pay off $500 credit card.
2. Mid-Term Goal – Save $10,000 for a new vehicle.
3. Long Term Goal – Save $500,000 for retirement.
In addition, you want to remember to be realistic and flexible with your goals and deadlines. Don’t get too attached to the date. In fact, it’s probably a good idea to review your targets after six months to see if working those goals into your budget is realistic and not too much of a financial strain on you and your budget.
First things first — do you have a budget? If not, make sure you set one up when you are in the process of setting your goals. Doing so will hopefully help you to become more watchful of your spending behaviors and will keep you mindful of the hard numbers you set down in print. If you haven’t done so yet, create a budget on pen and paper or develop one via a desktop tool like YNAB (You Need A Budget). Or use an online tool like Mint.com. Check out our review of YNAB personal budget software if you’d like to explore a great desktop budgeting tool.
A great strategy to take into account when budgeting for your goals is to open a separate high interest bearing account exclusively for saving for your goals. Many banks offer a savings account where you can create sub-categories within the account and allocate how much of your monthly deposit goes into each of those categories. With one glance, you can view your account and see how much is going towards each goal. This is excellent motivation for continuing to implement and stick to the goals that you have integrated into your budget. In addition, with high interest savings accounts, you have the benefit of compounding interest to build your savings as well.
Once you have implemented your goals into your monthly budget, you may need to curb your spending in certain areas to continue to contribute the monthly funds towards your goals. Many people do not realize how much they are spending for items such as food and transportation costs until they develop a monthly budget and attempt to stick to it. You may find that you will need to adjust some of your habits to cut certain expenses and meet your goals. Taking your lunch to work rather than eating out may be a great start. You can also attempt to find low cost or free entertainment venues within your community to cut down on money spent on entertainment and fun. The major key to working towards financial goals and sticking to your budget is to review your goals each month and to remind yourself why you are doing this.
Financial goals are important to your overall financial health because they determine where your money goes. Money is active and will continue to move regardless of where you decide to use it. The difference between those who are successful with managing their money and those who are not may just boil down to a commitment to financial goals and/or to budgeting. If you practice self-discipline and self-control with your finances, you are likely to live below your means. Those who are successful tell their money where to go each month. Do remember that the emotional and financial payoffs for setting goals can be significant.
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