Setting financial goals
Maybe you have a credit card balance you’d like to pay off. Or perhaps you have children you want to put through college. Or you hope to retire at 65 and live off your savings. These are all achievable financial goals, but they won’t simply happen on their own. They require careful planning and years of follow-through. The good news is, with the right strategy, meeting your financial goals can be easy and stress-free.
When you begin setting financial goals, it’s important to be specific. For example, it’s not enough to say, “I want to have enough to retire comfortably.” A more appropriate goal would be something like, “I want to save $300,000 by the time I’m 65.” The more specific you are, the easier it will be to come up with a plan to achieve your goal. It’s also important to be realistic. Remember, the point is to come up with goals that are achievable, not to create an impossible task that will just discourage you.
It may be helpful to divide your financial plans into short-term, medium-term and long-term goals:
- Short-term goals should take no more than about one year to achieve. For example, you may want to pay off the $2,000 balance on your credit card, or cut your household spending by $100 a month.
- Medium-term goals should be achievable within one to five years. A typical example would be planning to save $20,000 over five years to make a down payment on a house.
- Long-term goals will take more than five years to reach. These include saving for your retirement or for a child’s education.
Once you’ve mapped out your goals, it’s time to think about how you will achieve them.
Whatever your preferred method of investment, it’s a good idea to set up an automatic withdrawal that takes the money from your bank account every payday. This strategy of “paying yourself first” is an excellent way to make saving consistent and painless.
Use a chart like this one to plan your financial goals. Revisit them once a year to monitor your progress. You may decide you want to adjust a goal, or modify the way you’re going about achieving it. You may also find that your short-term goals are making your longer-range ones unattainable. If that’s the case, think about how much you’re putting toward all of your goals each month, and rebalance accordingly.
|Financial goal||Time frame||Amount||Monthly cost|
|Pay down credit card balance||12 months||$2,000||$180|
|Save for down payment||5 years||$20,000||$295|
|Save for child’s education||12 years||$50,000||$225|
|Save for retirement||30 years||$300,000||$250|
|TOTAL PER MONTH||$950|
Note: This example assumes that the credit card is charging 15% interest, that the savings invested for the down payment over 5 years, and for the child’s education over 12 years, are each earning 5% annually, and that the savings invested for retirement over 30 years is earning 7%.
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