How many times have you told yourself, “This is the year I finally get my finances in order”- only to lose track in the first few months? Let us tell you, you are not the only one!
For many individuals, financial planning usually starts with the best of intentions! But it ends with frustration when life gets in the way! However, setting achievable financial goals does not have to feel like you are chasing a moving target! If you have a clear plan in mind, set realistic expectations and bring a bit of structure to your life, you can actually follow through- and not lose your sanity!
Read on to learn how you can make next year the one where you achieve your personal finance goals!
-
Different Kinds of Financial Goals
Before you start thinking about numbers or timelines, it is important to understand the different types of financial goals. We usually break them down into three buckets!
- Short-term financial goals- These are the goals you can reach within twelve months. Some examples could be building an emergency fund, adhering to a monthly budget or paying off your credit card balance etc.
- Mid-term financial goals- These usually have a span of 2 to 5 years! Some examples could be saving for a car, funding a wedding or paying off student loans.
- Long-term financial goals- These goals stretch longer than five years into the future and can be heavy hitters. For instance, retirement savings, home ownership, building generational wealth etc.
Besides these goals, there are also financial goal categories to consider- like savings, investing, income protection in the form of will or insurance, income growth, and debt repayment among others. Each category plays a role in determining your financial health. The key consideration here is to figure out which goals are more important to you.
-
How to Set Effective Financial Goals
Now, here is where it starts getting real! Setting SMART financial goals- Specific, Measurable, Achievable, Relevant and Time-bound- is where your wishful thinking becomes something tangible! So instead of saying you want to save more, try resolving to save a particular amount. For instance, your target could be- “I will save $6,000 this year by putting aside $500 each month”.
This may seem like a very basic goal, but it does two things- it creates clarity and builds accountability too. And here is something most people overlook! Your goals must be personalized! Do not copy someone else’s financial resolutions to max out their IRA if your priority is to pay-off high-interest debt. Start where you are!
-
Building Your Financial Blueprint
Once your goals are clear, sketch out a plan! This will be your financial blueprint and it is where your financial goal planning will come to life.
Here is what you need to do!
-
- Start with a budget! Not the kind that feels more like a punishment! Instead use a method that suits your lifestyle. For instance, the 50/30/20 rule, a zero-based budget or even a simple spending tracker. You do not need the perfect budget- you need awareness regarding how much and where exactly are you spending.
- Create an emergency fund! This is your safety net, and it should be one of your top short-term financial goals. Ideally, you should put away three to six months of essential expenses- preferably in a high-yield savings account.
- Handle your debt tactically! Make a plan to pay off your debts- whether you want to pay off the one with the highest interest first (the avalanche method) or the smallest balance first (snowball method) it is better than making minimum payments.
- Automate what you can! Automation can be your best friend. For instance, you can set up automatic transfers to savings and investment accounts. Just remove that decision-making moment, and your future self will be grateful.
4. Taking Action and Tracking Your Progress
Having a plan is great, but it is action that gets you real results!
- Start small! You do not have to overhaul your life overnight. Instead, choose one goal to focus on first- like increasing your 401(k) contributions by 1% or canceling unused subscriptions.
- Track everything! Use budgeting apps or a spreadsheet to track- any tool that helps you stay consistent. It may be a good idea to check in monthly to see how you are doing. Are you moving in the right direction? If not, see what you can adjust.
- Celebrate your wins! Even the small ones. Paid off a credit card? Saved your first $1,000? These are great achievements and momentum tends to build when you recognize your progress.
5. Common Obstacles on the Road to Financial Success
Life happens, plans can get derailed and that is okay! No plan is bulletproof either! But when you know what could trip you up will make you more prepared to deal with it. Here are some common obstacles you may face.
- Underestimating Your Expenses– This is one common obstacle that catches people off guard all the time. To avoid this common trap, it is good to add a little cushion into your budget. This way surprise costs will not derail you.
- Procrastination- Waiting until things settle down is the fastest way to never start! To avoid procrastination, set deadlines and reminders and follow them strictly. Treat your financial goals like appointments you cannot miss.
- Lifestyle creep- As your income grows, your expenses will too- unless you are mindful. Firmly commit to increasing your savings rate whenever your income rises.
- Emotional spending- We have all been there- buying something to feel better after a rough day. Identify your spending triggers and create alternative coping strategies that do not involve your debit card.
6. Key Takeaways
If you are resolute in your aim to reach your money milestones next year, remember these important points:
-
- Understand the types of financial goals you want to pursue and how they fit into your broader plan.
- Use SMART goals to turn vague intentions into achievable financial goals.
- Build a financial plan that includes budgeting, saving, debt management, and automation.
- Stay accountable – track your progress and check in regularly.
- Anticipate your obstacles- and create strategies to overcome them.
Most importantly, keep it personal. Your financial journey does not have to look like anyone else’s. This is the beauty of financial goal planning- you get to shape your future, one step at a time.
So, are you ready to make your financial goals stick this time?
