Let's face it; managing finances has always been a hard nut to crack for almost everyone out there.
We have never liked a surprise car repair bill, an unexpected grocery list, or pet emergencies. If you're not prepared when a bill comes without any prior notice, and it interrupts your peace of mind, that alone is a sure indicator that you need to set your financial goals. Setting clear, easy-to-achieve goals is the FIRST STEP that you'll take on your journey of financial freedom.
What are Financial Goals?
Let us put it simply, financial goals are your money plans that impact your 'Present' and 'Future.' In other words, where do you financially see yourself in the next five years? Or next ten years? How do you plan to reach your goals?
I was able to break free from most my financial problems becuase I sat down once a year and planned out what I'd like to achieve financially that year. Some of my goals I'd achieve in a month and others I'd really stretch and I couldn't complete them. But I tried and my finances turn out better. That is the wonderful thing about finances if you strive for a better financial life and you achieve 80% of your goal. You're doing 80% better than you would have otherwise.
Your financial goals give you a point to focus on and keep you from spending frivolously. Goals can be further classified into two categories.
Short-term goals and long-term goals. Both have different outcomes based on their nature.
For example, I can't contribute $6,000 to my IRA account in a month. I need to break it up and make monthly contributions. $500 a month is much more achievable than $6,000 a month. The great part is something may come up, and I only put $50 towards my retirement. That is still $50 more than $0.
Why set financial goals?
When you set financial goals, it's like putting on glasses that will help you see things differently and clearly. You start becoming money-wise. You can see opportunities where you can improve your finances. You are more self-aware when you're spending money you shouldn't. Now, all the focus is to hit that target you have set. You no longer drain your money on things you don't truly need. It can be anything. Even a cup of coffee – that you buy every day (but can prepare one for yourself at home).
But…when you set some financial goals you start spending money mindfully.
This isn't just a "spend less" article. If you focus on increasing your income, buying that daily coffee isn't bad at all. Just hold yourself accountable. For some people, it is much easier to increase income than to decrease spending. Figure out where you're at with how that balance and make it happen. Spending extra time at work to make that over time could pay for your month's worth of coffee.
The Secret Formula of Financial Goals
Setting financial goals is easier when you have a perfect formula to follow.
That is: S-M-A-R-T
But what does it actually mean? Here's the breakdown.
Specific: Healthy financial goals are clear. Each goal has only one outcome. Say, you can set a goal to spend within the budget or invest a certain amount in setting up a new business. When your different financial goals combine, they start a healthy cash flow.
Measurable: Your financial goals need to be quantifiable. You might be pressing yourself hard to control your expenses, but how would you know that you are inching towards your end goal? A great way is to keep a journal and track your investments, expenditures, and savings.
Achievable: Your financial goals must be realistic and achievable. You shouldn't aim for what is not actionable. Otherwise, you'll get lost in the world of disappointment.
Rewarding: Your set goals must be rewarding enough to motivate you to stay consistent. Remember, there is a delicate balance I mentioned earlier about dropping spending and increasing income. If you don't feel rewarded, you'll have a lower chance of achieving your goal. Find a way to get that dopamine from achieving your goals. If you're miserable while walking through your goals, you aren't doing it right.
Time-bounded: Financial goals must be timely. You should allocate your goals in a specific time frame to achieve them. Automating your goals is the absolute best way to assist you when you're focusing on timely goals.
Example: I want to save $100 a month, so I'll set up auto-withdrawal every two weeks from my checking. Early on, this is the best way to handle it as you'll later adjust to not seeing that money in your account anymore.
There you have it – the reason you should set financial goals and the key attributes of your financial goals! So, are you ready to get on your first step to financial freedom? If so, great! Believe it or not, seeing your money grow is fun. Take out your notepad and start jotting down your initial plan right away. If it's not on paper, you have a much lower chance of completing your goals.