Goals are important. No one ever achieves anything significant in life without a goal. Imagine having to shoot an arrow without being given a target. Where would you aim? Wouldn’t your shot be a pointless waste of time and effort? Goals give us something to aim for; they take us forward in life. They are like the oxygen to our dreams. Rather than shooting aimlessly, having a goal allows you to hit your target. Here are 6 simple steps to setting financial goals.
1: Figure out what matters to you. Put everything from what is urgent to the whimsical and distant on the table for inspection and analysis. Keep asking yourself why your goal is important.
2: Categorise your goals: Sort out what is within easy reach and label that as short term. What might take a bit of time could be labelled medium term and anything way out there in the future would be labelled long term.
3: Apply a SMART goal strategy. You may have heard this before, but your ambitions should be specific, measurable, achievable, relevant and have a time limit. SMART.
4: Create a realistic budget. Get a handle on what’s coming in and what’s going out. Then work it to address your goals; finding out what is affordable, what is realistic and what is out of the question.
5: Put your plan into action: If your budget shows that you have a bit leftover every month, you’re on your way to getting started. If it doesn’t, then you would need to address your income v expenditure.
6: Monitor your progress and make changes as life evolves.
Short term financial goals:
Make a budget and live by it: Living without a budget is a bit like driving a vehicle without a fuel gauge. You’ll get caught out and run out of gas. A strong handle on what’s coming in vs what is going out will give you an idea of what is affordable, where to make cuts in your expenditure and whether you are earning enough to achieve your goals.
Pay off credit card debts and short-term loans. These are very accessible but are a great financial trap. The interest paid on such accounts eats up so much of the cashflow that could be used for other plans. Once paid off, avoiding short term debt should be part of the plan.
Medium term financial goals:
Build an emergency fund: Three months of liquidity is the minimum standard however building an emergency reserve isn’t easy and takes planning and sacrifice. Six months is even better. In a fragile economy and jobs market, having an emergency reserve is key.
Save for a deposit for a home: For most people, this would be their most significant purchase and investment. A bigger deposit will get you a better mortgage deal and a lower mortgage so it’s worth saving as much a possible prior to purchase.
Long term financial goals
Develop skills to improve your income. This does not necessarily mean a return to school for an additional degree. It might mean taking on additional training or responsibility at your current job. It could also mean attending conferences and workshops, networking in your profession; anything to acquire more contacts and knowledge.
Planning for retirement: Having a retirement plan and goal can be fun and exciting; especially when working with a financial adviser who could help you with a realistic retirement fund target.
Now, armed with your bow, arrow and target, it’s time to get shooting. Good luck!