People set goals for lots of different aspects of their lives – professional goals, fitness goals, leisure goals and even romantic goals – but one of the most overlooked (and most important) goals we can set are financial goals. Most people will say they want to live in a nice house, drive a modern car and take regular holidays. But many will not put a viable plan in place to achieve them, so they become just wishful pipe dreams. This is where financial goal setting comes in.
What are financial goals?
Financial goals are the priorities and targets you set for how you want to spend or save your money. Financial goals are not one size fits all, they are individual preferences because everyone has different needs, wants and priorities. If financial goals have not been set, you could be left wondering where all your money went. Financial goals do not always have to be purchases, they can also be aspirations such as becoming debt free, saving for retirement, or giving to charity. Don’t confuse a financial goal with the process of achieving it – a financial goal will only tell you what the end result will be but having a good financial plan will ensure you reach your goal.
Why should we use them?
Setting and working towards financial goals helps to keep the big picture in mind rather than day-to-day expenses. Day to day expenses will demand your attention but it’s important to make your financial goals a priority. Creating a budget and reducing expenses with your goals in mind makes managing your spending easier. It also makes it easier to avoid impulse purchases. For example, if you’re working towards buying a dream holiday by saving £100 per month, financial goals make it easier to build discipline and avoid the temptation to buy on impulse a bunch of items you really don’t need. It is very easy, especially with developments in technology that allows us to spend, spend, and spend some more, to fritter away money on frivolous purchases. Financial goals remind you of the reasons why you are choosing a particular financial journey.
Setting your Financial Goals
How do we go about setting our financial goals? Here are some important points to think about:
- Be clear about your objectives
Any goal without a clear objective is nothing more than a pipe dream, and this is very true for financial matters. If you’re saving today for the future, then you should be crystal clear about what it’s for. The more specific your goal is, the greater likelihood you’ll be motivated to stick with it. If your target is to buy a car within three years, be specific about the colour, the make and model. The goal could be anything – retirement, marriage, a dream holiday, or a car. Once that objective is clear, put a monetary value to that objective and a time frame. The important point at this step is to list all the objectives that you see in the future and put a value on each one.
- Keep your goals realistic
It’s good to be an optimistic person but being optimistic to the verge of being unrealistic is just not viable. While it might be a good thing to aim high, going beyond what you can realistically achieve can hurt your chances of making meaningful progress. It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.
- Short Term Vs Long Term
The approach to achieving financial goals will not be the same. It’s important to separate your goals into the short term and long term. Generally, any financial goal that is due in the next three years should be termed a short-term goal. Any longer duration goals are classified as long-term goals. This separation of goals into short-term vs long-term categories will help in choosing the right strategies to achieve them.
Be sure to spend time thinking about what you want and why you want it. Once this becomes clear, you’ll be able to prioritize and set timelines for achieving them.
Setting your financial goals is a good first step but make sure you create a viable plan – a budget (feel free to use ours: https://www.redstareducation.co.uk/blog/budget-calculator/), so you have the funds to back it up.
By now, you should be ready with your list of financial goals – it’s time to go all out and achieve them.