As we move into the new year, you may want to review your accomplishments and consider building on them with financial goals that align with your values for your future. Your values are your fundamental beliefs about what is essential and desirable and provide the rationale for your financial and lifestyle goals. Everyone differs in the way that is most meaningful to us. We express our values by spending, saving, investing, and donating our money. We’ll show you how to set financial goals with examples.
What Are Financial Goals?
Financial goals are the specific objectives or milestones we want to achieve that are consistent with our values. When we set financial goals to achieve the desired result, we may establish a new habit or replace an unwanted one, like paying bills late. Achieving financial goals is part of successful financial planning, which involves setting short-term, intermediate, and long-term objectives.
Depending on our stage of life, we may want to set financial goals for the short-term for things that are relatively achievable within a year, like buying a large screen TV or new frig, to an intermediate-term that can take more than a year to five years, like saving money for a downpayment for a home, or long-term financial goals like for your retirement which beyond five years or more. Whether you seek financial stability or substantial wealth generation is up to you.
Why It Is Important To Set Financial Goals
Setting financial goals helps you make more conscious decisions that affect your financial health. Perhaps you have been winging it and doing fine thus far. However, you may neglect things like buying enough term life insurance or increasing your savings for retirement and college tuition, which could be consequential in the longer term.
By establishing your goals individually or with your partner, you can make sure you are staying on the path you most desire so that you can buy your dream house, retire in comfort, and avoid the burden of too much debt. You and your partner should agree on common financial goals and break them into your priorities and timeframe. When setting financial goals for the first time, you may consider meeting with a certified financial planner who can help you create reasonable goals for you and your family.
Visualize Your Longer-Term Goals But Track Progress Now
If your primary goal is to buy your home, tape a beautiful house to your refrigerator as inspiration. You can use quotes as a reminder that you will finally be free of costly credit card balances by September 2024 based on your debt management plan. Do what works best for you, allowing you to stay motivated to achieve your goals. Several financial apps can’t help but keep you on course.
Examples of Common Financial Goals
Sometimes, it is tough to know where to start setting goals you want to accomplish. Review your achievements in the prior year and consider relevant financial objectives for 2024. Here are 13 examples of financial goals.
1. Create A Budget
It’s hard to achieve your financial goals in the dark. By creating a budget or using a budget app, you can separate your income sources from your fixed costs associated with living expenses and discretionary or variable costs. You should review your monthly bills and see if there is room for negotiating rates.
2. Establish An Emergency Fund
Create an emergency savings fund for protection against unexpected events. Sometimes, things can be costly to your budget and difficult to forecast. Meeting financial emergencies caused by a job loss, car repair, a medical or dental emergency, or boiler exploding can require significant money. Rather than turning to your credit card, having an emergency fund of three to six months of your essential costs gives you breathing room to pay those bills.
3. Paying Off Substantial Credit Card Balances
Realizing that your card balances have been rising, especially during high inflation, has caused an untenable amount of credit card debt to grow faster than your income. You realize you need to cut some spending and use savings to bring down those balances to achievable levels. Ultimately, you want to get to zero balances by paying off your card bills in full.
4. Saving For A Car Down Payment
Your family has grown, and you want to buy another car. You want to save about $250 monthly for the down payment, recognizing that you would consider a certified used car. It may take you a couple of years, or you can save more money and forego eating out as often as you and your family do now.
5. Saving For A Home Down Payment
Similarly, you want to save for a 20% down payment on a home to avoid paying mortgage insurance. Homes in your area go for $600K and up, so you would need at least $120,000 for the down payment and would like to move to a nice neighborhood in the next three to five years. This goal requires making saving a high priority and possibly working longer hours.
6. Saving For College For Your Kids
Your kids are toddlers, but you want to start saving for college now. Given the high tuition, room, and board, you want to establish 529 flexible, tax-advantaged accounts for your two children as soon as possible.
7. Contributing To Your Retirement Accounts
You recently changed jobs from one that didn’t offer a 401K account, and as a result, you want to start contributing to your new 401K retirement account, as your company will match 50% of your contribution each month. Additionally, you want to open and contribute to a Roth IRA account.
8. Make Investments
You have been relatively conservative about investing and have not allocated much of your savings to investment accounts other than your retirement account. You have never invested but have started researching and will open a low-cost index mutual fund. Additionally, you want to meet with a recommended financial broker, as you are not sure you want to do your investing.
9. Improve Your Credit Score
Although you don’t expect to need a loan soon, you realize that if you consider a new car, you may want to improve your credit score to get a relatively low-interest rate when borrowing or leasing the car. Besides, you may want to authorize your son to use your credit card soon, so you want to clean up your credit score.
10. Tax Optimization Strategies
In the short term, you want to confirm that your employer’s withholding of your taxes is sufficient. You want to ensure long-term that your tax accountant can optimize taxes so you do not pay too much, as you recently received money from an uncle who passed away.
11. Get More Life Insurance
You received a life insurance plan from your new employer, but unfortunately, it is too low an amount, and if something happened to you, your family may not have enough coverage. Make an appointment with HR to see if you can increase your coverage by taking more money out of your paycheck to cover your family.
12. Increase Your Income
You may find that you have cut spending and increased savings, but you still feel you’re far from where you want to be in your desire to be financially independent. You want to add a side hustle that may boost your income to get there faster. The fastest way to make more money is to turn your hobby of making jewelry, which you love doing, into a side hustle.
13. Paying Student Loans
You will graduate college later this year, so you must start paying down your student loans. You want to consider paying off your student early, which will help you get out of debt faster with less interest costs if you can handle it. It may mean living at home with your parents for a time before moving out with friends.
How to Set SMART Financial Goals
A SMART approach can help us achieve our financial goals to reach them better. You can adapt this approach to your business, personal finance, or career goals. The acronym guides us:
- Realistic (or Relevant, Reasonable)
A SMART Example: Saving For An Emergency Fund
You want to establish an emergency fund to cover essential living expenses for unexpected events like a potential job loss. While you haven’t lost your job yet, you haven’t set aside money. So, it is time to open up a high-yield savings or money market account. Save by automating weekly transfers from your paycheck until you reach a six-month target of $1,500. (SPECIFIC) Avoid broad or vague goals that may impact your motivation.
How long should it take to save for six months of living expenses? It depends on your willingness to save more and spend less to have an ample fund. When you set your goal, you want it achievable within six months or a year, ensuring your plan is reasonable. (ACHIEVABLE, REASONABLE) Keep in mind that your savings are after-tax income. If you can save 5%, your spending amounts to 95%. If you can save 20%, there is 80% for spending. (MEASURABLE)
A back-of-the-envelope calculation can help determine how long it will take. To save one month’s needs, divide the percentage of spending by the rate you are saving. If you can only save 5%, you are spending 95%. Divide 95 by 5, and it will take 19 months to save one month for your emergency fund.
Do you want a slow and steady plan, or would you instead build up your emergency funds more aggressively? It is up to you. More aggressive savings of 20% after-tax income produce a more satisfactory four-month timeframe. (TIME)
Remember that some goals may be short-term, meaning twelve months or less, such as beginning to save for a car down payment, while other goals could be multiyear projects. Investing in your child’s college tuition or your retirement is a decades-long objective.
Set achievable financial goals that you can accomplish. Decide what areas you need to work on to manage your money better, and develop a specific plan to achieve the desired result. Take steps to eliminate the financial stresses to have financial security and succeed.
With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.