How to Set and Reach Your Financial Goals
Setting and Reaching your long-term and short-term Financial Goals
Setting goals is an important step toward creating a secure financial future. Goals provide clear direction by requiring you to focus on a specific money target. While goals can vary greatly depending on individual circumstances, having both short-term and long-term goals is essential to successful financial planning. Short-term goals are typically achieved in a year or less, while long-term goals are often more ambitious and can take years to accomplish.
Here’s why it’s vital to set both short-term and long-term financial goals, along with the best plan for achieving them.
Encourage Quick Financial Wins
Short-term goals can be a great way to jumpstart your financial planning process. Since these goals are generally smaller and easier to achieve, they can help you stay motivated by scoring a few quick financial wins.
For example, if you aim to lower your credit utilization ratio, a key factor in credit score calculations, setting a short-term goal to pay off $500 of credit card debt in six months can be a great way to start. Reducing debt frees up cash in your budget for other goals and can improve your credit health.
Help Reinforce Good Financial Habits
Another benefit of setting short-term goals is that they can help you create good financial habits that last a lifetime. The timeframe for these goals is short enough for you to repeatedly experience a feeling of accomplishment which further reinforces the necessary behaviors, i.e., sticking to a budget and making regular savings deposits, that helped you achieve the goal.
Provide a Financial Framework
Long-term goals provide structure for overall financial planning. With a clear long-term goal, staying focused and making wise money decisions is easier. For example, if you plan to buy a house in the next five years, that goal could motivate you to set cash aside for a down payment and closing costs, as well as explore mortgage loan options sooner rather than later.
Help You Avoid Financial Uncertainty
When you have long-term financial goals, saying no to impulse buys or other unnecessary purchases becomes easier. Setting long-term goals, such as saving enough money to allow you to live a nomad lifestyle during your golden years, can ensure you have the funds available when the time comes. Even if your retirement dreams are less adventurous, building a retirement nest egg large enough to enjoy a comfortable retirement provides peace of mind.
How to Achieve S.M.A.R.T. Financial Goals
Vague financial targets are hard to stick to. But once you get clear on what you plan to achieve and when, you’re less likely to abandon your goals. Use these questions to ensure you’re setting S.M.A.R.T. financial goals:
Specific – What is the exact dollar amount you intend to save?
Measurable – How will you measure progress toward meeting the goal?
Attainable – Can you realistically achieve the savings goal, considering your time frame and income sources?
Relevant – Which area of your financial life does the goal affect?
Timely – When is the deadline for meeting the goal?
By setting both short-term and long-term financial goals, you can take steps toward creating and maintaining a secure financial future.