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.
Determine Goals As Your First Step
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.
Budgeting For Your Goals
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 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.
Created September 23, 2010. Updated August 15, 2012. Copyright © 2012 The Digerati Life. All Rights Reserved.
{ 7 comments… read them below or add one }
This post offers some great tips on how to set and reach your goals.
Your Vision and Goals are the Stepping Stones for achieving SUCCESS.
Visualization is a good way to get motivated. Setting goals allows you to turn to reality, those things that you’ve been visualizing. You start with knowing what it is you want to do, then plan for making those things actually happen. The problem with a lot of people is that they will dream but they won’t act. It may be because of fear or other distractions that keep them away from the things they seek. That’s when will power, focus, and determination step in. Get motivated people!
I found the setting goals method a great help. I employed this just last year. I vowed I would sort my debt thru an IVA. It’s the best thing I ever did.
Hey Digerati,
Good posting. People need to be reminded of the basics. One thing I might add is to be sure that your goals are 1) achievable 2) measurable and 3) truly in line with your values.
Best,
James
Have you actually used mint.com tools to set up goals for yourself? I’m just curious if anyone has had experience with them?
Yes, try out Mint. It’s come a long way and a lot of folks who need to manage their budgets swear by it. I would recommend their tools especially since they’re free!
Setting goals is one of the number one ways to begin accomplishing almost anything in life, and with financial goals I think it’s even more important! 🙂