As we head into a new year, now can be a good time to start thinking about the things we want to achieve. Many of us set New Year’s resolutions (which we often end up failing to stick to), but what are our financial goals? And if you do have a financial goal as one of your New Year’s resolutions, have you figured out how you’re actually going to achieve this?
What are Financial Goals and Why should we use Them?
Financial goals are the priorities and targets you set for how you want to spend and save your money. These come in all shapes and sizes, and will completely depend on your own needs, wants and priorities. There are a huge number of financial goals but some examples include:
- Becoming debt free
- Going on holiday
- Being financially prepared for retirement
- Buying a house
- Buying a new pair of shoes
When it all comes down to it, many of the things we want to do or achieve will cost money, and this is where financial goal setting can be an incredibly useful tool for any stage of your life.
Establishing financial goals can help us figure out what things we want to prioritise. Factoring financial goals into our budget can help us to manage our spending and figure out where we want to reduce any expenditures.
Financial Goal Setting
When setting financial goals, it can be handy to use the SMART goal setting technique.
It’s important for us to be very SPECIFIC when setting financial goals. We should be detailed about what it is exactly that we want to achieve. For example, if you would like to buy a car, what kind of make and model is this car? How much is the road tax?
We should also make sure that our financial goals are MEASURABLE so that we can see we are working towards achieving this goal. You may wish to set up a savings account to help you see how near or far you are from achieving your goal.
Financial goals should always be ACHIEVABLE for where you are in life right now. There’s no point in setting yourself up for failure by setting up a financial goal which you will never realistically achieve, such as buying a new house in a month when you have no existing savings.
Therefore, it’s important to be REALISTIC when financial goal setting. You should look at how much income you have coming in, any expenses you have, and any priorities you need to put first. These things will help you to figure out how much you can realistically set aside to achieve this goal. This is particularly important if you would have to take on extra hours or an additional job in order to achieve your goal, as you don’t want to run yourself ragged and risk experiencing burn-out!
Finally, our financial goal should always be TIMELY. By setting a deadline, it means you have something to work towards. By being specific with our goal, we should know exactly how much money we should put aside, and if we are also then time-bound, we can set a deadline for achieving it, which allows us to work out how much money we need to put aside every week or month. Being timely also helps us to prevent procrastination, as without a plan, it can be easy to keep pushing back when we want to achieve our goals.