When you know what you’re saving for, you’re less likely to spend money on other things. A clear picture of where you want to be helps you stay disciplined and focused on your future. But there are so many things you could strive for — how do you know what’s best for you?
Your goals are likely influenced by where you are in life. If you are just starting out or have dealt with some setbacks, start by focusing on setting financial goals for the short-term, which will build a strong foundation onto which you can continue to build.
Evaluating what you want out of life — then committing to that goal by making a plan to achieve it — isn’t always easy, but it is the first step in building your ideal future.
Where Do I Start?
First you need to decide what matters. There are many types of financial goals, but what will you spend your time and energy working toward? Have a brainstorming session.
Next, determine what kind of timeline you are looking at. Sort your goals into short-, medium- and long-term buckets. If you are in your 20’s, perhaps purchasing a vacation home on the beach is a long-term goal — but a vacation is doable within the next year.
Set “SMART” goals (specific, measurable, attainable, relevant, time-based) to help you on your journey. Starting a business, retiring or paying for your children’s education doesn’t just happen. You want to create a plan with measured steps to get there.
Create (or update) your budget. Budgeting helps you track where your money is going versus where it needs to go. Are you surprised that your lunches out are adding up to $250 a month? Do you have a better use for that money? Budgeting is a way to set your priorities and ensure that you are sticking to them. When you know how you are spending, you can re-allocate money to achieving your goals.
What Should I Strive for First?
Not only do short-term goals help prepare your financial foundation, they also give you quick wins to help you keep moving forward.
- Establishing an emergency fund to pay for unexpected expenses saves you from having to take on additional debt. Start with $1,000 then save 3-6 months of expenses. The financial stability you achieve when you have a solid emergency savings helps as you start to take on more goals.
- Pay off high-interest debt that is keeping you from moving forward. When you have high-interest debt — like credit card debt — you are paying a significant amount of interest each month. That interest could go toward achieving your longer-term goals.
- While you want to work toward a strong financial future, you will also have significant expenditures during this time. Don’t forget to set savings goals for things like large purchases (equipment for a hobby, new technology, tickets, etc.) or upcoming trips.
- Protect yourself and your family with the appropriate insurance. Life insurance and disability insurance can help ensure that if something terrible were to happen, you and/or your family wouldn’t have to also contend with the impact of losing your income.
- Pay off your student loans so that you can put that money toward your other goals.
- Explore additional revenue streams. Do you have a hobby that you can monetize? Perhaps you have a talent that can add to your monthly income.
- Think about what you want to achieve — like purchasing a home, sending your children to college, taking a significant vacation, completing a degree or certification, or making a sizeable donation to your favorite charity.
Looking at the Long-Term
- A comfortable retirement is the primary focus of any long-term planning that the majority of people do. Determining your retirement needs years in the future is a difficult task, but a financial advisor can help ensure you are on track.
- A once-in-a-lifetime trip could be on your list of goals to accomplish in the long-term.
- You may have additional family goals, like providing the opportunity for your child or children to go to college debt-free. You may also want to start building generational wealth that will set your heirs up for success.
- Some people make long-term plans to leave a legacy gift to a charity they are involved in, ensuring its continuation and success in future years.
Be consistent, not perfect. Know that you are going to slip or have setbacks, but when you make goals, you are giving your money a job that will help prepare you for your future. As you begin to think about what you’d like to accomplish, talk to a Farm Bureau agent or financial advisor about your options.