Written by Kira Vermond
(4 min read)
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Want to get richer? Then it’s time to write a financial plan and set financial goals! But here’s the thing. Although studies show that people with a written plan are more likely to feel they’re on track with their savings, a lot of us have no clue how to start one. So what’s the secret?
Two words: goal setting.
Creating a financial plan without first figuring out your long-term financial goals is a little like taking a road trip without a map or GPS. A surefire way to waste time and possibly get lost. Check out these six steps for creating goals — and a simple strategy for crushing them too.
1. What floats your boat?
First things first. Before identifying your financial goals, reflect on what’s most important to you. Maybe you want to pay off your student loans, become debt-free by the time you’re 45, or have a certain amount in your savings account. Or maybe you just want to save for a 60-inch TV so you can watch the game!
Financial goals tend to describe things that are often big-ticket items, important for financial health or will be needed in the future. It’s also a good idea to have a mix of short-term financial goals in addition to your mid- or long-term goals. So mix it up a little! Save for a trip to Thailand next winter. Or dream big and sock away funds for a family cottage you’d like to buy in 15 years.
- Short-term goals: 1-3 years
- Medium-term goals: 3-5 years
- Long-term goals: 5+ years
2. Get SMART
Maybe you’ve heard goal-setting experts talk about SMART goals:
In other words, no wishy-washy or vague goals here. So instead of, “I’d like to someday build an emergency fund nest egg,” write, “I want to save $75 per month for three years to build a $2,700 fund.” See the difference? The same principle can apply to credit card debt, savings goals like paying for a down payment, and so much more!
3. Line them up
Now that you’ve established your money goals, don’t just tackle the first one and work your way down the list. Instead, prioritize them in terms of importance.
Hint: What keeps you up at night? Debt trouble? Paying for a much-needed new car next year? Chances are, you’ll want to start with those.
By the way, retirement might seem a long way off, but it should probably be high up on your priority list. It’s best to start early, so make sure to create a retirement plan and allocate retirement savings if possible.
4. Track, add, subtract
OK, maybe this step isn’t exactly fun, but it’s usually eye-opening. To create a realistic savings plan, you’re going to want to…
- Track your spending for a month — yes, everything
- Add up all of your income during that time
- Subtract monthly expenses from your income to see what’s leftover
- Allocate the leftover money to finance your goals
Knowing how much money you’re earning and spending is important when deciding how much you can save for your future goals without feeling the pinch now.
5. Make it automatic
No doubt about it, sticking with a financial plan can be tough. (That new sweater? So tempting!) Make things easier on yourself. Make saving automatic — and always pay yourself first. Setting up an automatic weekly or a monthly payment plan through your financial institution really works. It means you don’t have to rely on willpower or memory to stay on track. Just set it… and forget it.
6. Keep an eye out
You’re not done yet. It’s important to review and update your goals periodically. Did you recently land a new job? Have a baby? Inherit money from a family member? Goals should reflect new lifestyle changes whenever they pop up. So revisit them at least once a year.
The bottom line:
Whether you’re trying to improve your credit score or build up the amount of money in your savings account, setting a financial plan is key to achieving financial goals. Get your personal finance in check today!
Join the conversation: What financial goals would make the top of your list and what strategies have you implemented to achieve them?