Everyone knows that if you want to achieve something, you better set a goal. Yet few Americans actually do, or even know how to, set financial goals. According to Schwab’s Modern Wealth Index, only 33% of people have some kind of written plan or goal.
What’s worse? The Financial Health Network found that only 29% of Americans are financially healthy.
Well…it doesn’t take advanced calculus to figure out there might be a correlation. You will be in better financial shape if you have financial goals.
Financial goals help you feel better and do better
Financial goals and plans will enable you to:
Stop worrying and feel more confident
The American Psychiatric Association reports that 70% of adults worry about money problems. Goal setting is proven to help reduce your financial stress and get you into the future you want.
Research from Charles Schwab found that people with a plan are at least 25% more likely to feel financially stable.
Avoid problems and create wealth
The better you can achieve your goals, the more problems you can avoid and the more wealth you can create. Setting goals and planning your finances can give you a head start on taxes, savings, and more.
And, when disaster strikes, you’ll be better able to weather it. In fact, people who have a comprehensive financial plan are 32% more likely to have an emergency fund.
The person who sets goals and develops a written plan is:
- Nearly 20% more likely to avoid debt problems
- 31% are more likely to consider risk tolerance when investing to set themselves up for success
- 26% more likely to understand and avoid fees and investment costs
- 24% more likely to be rebalanced regularly
make better decisions
Every financial decision you make affects your money today and for the rest of your life. By making these decisions based on your short-term and long-term goals, you’ll be more likely to be successful and happy.
There are 4 types of financial goals
While any financial goal setting is good, you can get better results by setting goals in all of the following categories:
- Process-oriented financial goals
- short term financial goals
- medium-term financial goals
- long term financial goals
Read on to learn more about personal financial goals in all of these categories.
1. Process-oriented financial goals
Process-oriented goals are about “how” to achieve something, not about “what” you want to achieve. Process-oriented goals are goals you set for how to achieve your goals.
Therefore, setting process-oriented financial goals is a great way to help you ensure success. It will help you develop habits of wealth and security.
You can set process-oriented goals around who, what, when, where, and why questions:
A. What and Where: Building a System
What system would you like to have in place to track and manage your savings, spending, and income goals? Spreadsheet? Notebook? A planning system like Boulding Retirement Planner?
B. Time: Set time range
How often would you like to review key financial indicators? Some people check their accounts every day, some check them monthly, some people check them quarterly, or even every two years or every year.
The more often the better. Make financial planning a habit!
C. Who: Gain support from your family
If you are single and do not have any family, your financial planning will be simpler.
Everyone else, your plan needs support from everyone who is or may cost you in the future.
Most importantly, you need to plan with your spouse. If you want to spend your retirement with your spouse, address these 8 topics.
2. Short-term financial goals
Short-term financial goals are things you can accomplish between today (yes, you can cross something off your list today) and the next few months.
Here are 7 important short-term financial goals:
A. Establish an emergency fund
Having an emergency fund (a cash equivalent of three months to a year’s income) is key to your financial health.
An emergency fund is essential to prevent you from accumulating debt or having to make compromising decisions when things go wrong.
Learn more about how to create an emergency fund and why it’s important. Or, learn about the best (and worst) sources of emergency funds.
B. Develop the habit of monitoring and learning
The most actionable thing you can do to improve your financial outlook is to develop financial habits. Often, this might mean setting aside an hour each week to just learn about money. Use this time to evaluate your budget, review your savings, and learn about personal finance.
C. Goal Setting Goal Setting: Determine your immediate and long-term financial needs and desires
Do you know how much money you will need in retirement? How much money should you keep in your emergency fund? How much does it cost to send your kids to college, fund your parents’ long-term care needs, buy a home or second home, fund health care, or pay for that vacation you really want?
Maybe none of these are for you. However, you do want to get something in the future.
Now, it’s important that you know how much you have to sacrifice to live the life you want.
Having trouble imagining your future needs? Here are 7 ways to imagine the future you want.
Once you know what you want, a Boldin retirement planner can help you understand the numbers you need to achieve your goals and develop a comfortable plan to achieve your goals. Find out if you’re on track and get tons of ideas on how to make better decisions.
D. Increase your savings rate if necessary
Once you determine your immediate and long-term financial needs, you may find that you need to save more money. Make a plan to increase your savings—perhaps gradually over time. To make goal setting achievable and meaningful, you need to be specific and detailed. For example, you might say you plan to save an extra $5 a day, or try to save $500 a month, with 50% for retirement and the balance for other savings goals.
automation: Don’t know how to save more? Automatic savings is one of the best things you can do today to create a better future for you. Automatic savings (especially if you schedule increases to match salary increases) can ensure savings are realized.
Want more tips on how to save more? Here are 22 smart and easy ways to save big!
E. Create a monthly budget
Tracking how you spend your money is an important part of financial health. A budget will help you:
- Manage expenses
- reach goal
- save money
- Reduce stress
- Give you a sense of control
A budget doesn’t need to be detailed, just write down how much you make, how much you spend (and on what), and how much you save. Make sure your expenses (including savings) are lower than your income.
F. Develop an investment plan
Simply saving money is not enough. You need to invest effectively and appropriately based on your personal circumstances (age, risk profile, needs and time frame).
The investment plan is not to actively trade stocks. An investment plan is a thoughtful document that outlines your savings goals, strategies for achieving those goals, a framework for changes to your investment plan, and options for handling if things don’t go as expected.
An investment plan is one of the best short-term financial goals you can have because it sets you up for long-term success.
Learn more about creating an investment policy statement. Or, set up a free discovery session with a fee-based financial advisor to evaluate how they can help you build investments you can manage yourself.
G. Do you have any debt? Make a plan to get rid of it
Just like you have a plan to save more and invest strategically, you also need to set a goal to get out of debt, especially high-interest credit card or student loan debt. Here’s how to pay off debt: 12 ways to reduce this expense to prosper long-term.
We also strongly recommend that you record your debt in the Boldin Retirement Plan and implement accelerated debt payoff scenarios. See what happens to your wealth and security throughout your life. This exercise is very effective, fun and very motivating.
3. Medium-term financial goals
Medium-term financial goals may take you the next five years or less to achieve, depending on what trade-offs you’re willing to make.
A. Improve your credit score
Credit rating agencies and other services can provide you with important tips on improving your credit score. A good credit score can help you get favorable loan terms.
Your credit score is especially important if you want to buy a property in the future. However, your credit score also affects how much you pay in credit card interest and insurance rates.
B. Develop a long-term tax plan
Developing a long-term tax strategy can ensure you have a more secure retirement and can help you keep more of your hard-earned money.
Boldin Retirement Planner enables you to understand your potential tax liability in future years and get ideas for minimizing this expense. It takes careful consideration, but developing strategies such as Roth conversions and taxable income transfers can lead to substantial lifetime savings.
C. Think about how you want to spend your time
There is a limit to how much money you can make in your lifetime. Likewise, there is a limit to the amount of time you can spend.
When thinking about financial goals, how you want to spend your time is crucial. Do you want to:
- Work harder to increase your income to succeed so you can save more now?
- Looking for a second job so you have a better chance of retiring early?
- Enjoy life now, but work longer hours (maybe not a big deal if you really like your job)?
- Drastically cut back on spending to save as much as possible?
Your income, expenses and savings are all related to your financial and lifestyle choices.
D. Get out of debt
If you set a short-term goal of creating a plan to get out of debt, your mid-term goal is to make debt disappear from your life.
Debt poses a huge threat to your financial well-being. For something that gives you utility – a mortgage or a car (especially with a low interest rate) – it’s okay to go into debt. However, credit cards and other types of high-interest debt can be akin to setting your money on fire.
E. Retire early!
Yes. No matter your age, it’s entirely possible to plan for mid-term retirement.
Retire young: You may want to know about Financial Independence, Retire Early (FIRE). FIRE is basically making some important lifestyle choices right away in an attempt to build up a substantial amount of savings so that you don’t have to work. FIRE followers will retire in their 20s and 30s! Learn more about fires.
Retirement from middle age to before age 65: About half of Americans retire early—usually at age 61, but many stop working in their 50s. And, with planning, you can achieve this goal. Here are some resources to assist with your planning:
4. Long-term financial goals
There are two key long-term financial goals:
A. Achieve retirement or financial independence
When you’ve saved enough money and earned enough income to last for the rest of your life, you’re ready to retire—no matter how long that takes.
However, you still need to achieve goals and targets as you transition into retirement. You want:
- Create a retirement withdrawal plan for your assets—you now need to determine the most efficient way to spend, not figure out how to save
- Your investment plans may change
- Taxes, medical bills, long-term care planning, and plenty of Plans B, C, and D (for anything that might not go as expected) are all important for a secure future
- You need a retirement income plan – preferably find ways to guarantee income for your and your spouse’s lifetime
- And, there’s more…
B. Leave the inheritance to your heirs
Besides retirement, another real long-term goal for many people is to leave something to their heirs—either money or, in many cases, your house.
Use Boldin Retirement Planner to track and manage your short-, mid- and long-term goals, including understanding the legacy you can leave behind.
Source link
