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Every individual has a different perception when speaking of financial goals. And according to the Savology,
34% of Americans have $0 in savings, and
66% of millennials have $0 savings for their retirement.
In this scenario, setting financial goals becomes extremely important so that you can work hard and achieve your desired goals.
Also, check out: 5 Stages of Financial Life Cycle and How to Plan it
What are Financial Goals?
Financial goals are the small, mid-, and long-term targets an individual aims to reach for financial plans or milestones. One can also understand these goals as financial aims you want to accomplish within a specific period.
It involves:
- Child education fund,
- Emergency fund,
- Healthcare savings,
- Paying off debts,
- Retirement plan, etc.
Setting financial goals helps you maintain your budget while spending and increasing your savings to reach those goals in a specific time frame.
Why is it Important to Set Financial Goals?
A financial goal is a specific, measurable, attainable, relevant, and time-bound aim that is a blueprint for earning money. Financial goals can be of many types, and examples include saving for a wedding, paying off debts, and saving for retirement.
Here are some reasons that show the importance of setting a financial goal:
- Helps to save money in tax-advantageous accounts
- Reduce financial risk by opting for a good strategy.
- Develop a better financial purpose to reach financial goals even in case of barriers.
- Provide financial direction to prioritize investments and savings
- Help in developing budgeting and saving habits
- To understand where you financially stand.
- It helps in bringing out different strategies
- Helps to nurture your career
- It helps you stay focused
- Creates a sense of achievement
Types of Financial Goals
Everyone aims to achieve the financial goals that they have set, and these goals are broadly categorized into three types:
Let’s understand them briefly,
1. Short Term Financial Goals
Short-term goals usually last less than a year, or in other words, they require less than a year to achieve. Unlike long-term financial goals (paying off student loans or retirement funds), they show things you wish to clear off soon.
Short-term goals are diverse. They refer to your daily goals, such as cleaning your room and planning a party. However, they can also be beneficial for your longer goals.
Check out this blog to learn the best investment options in short-term plans and get high returns.
Some examples of short-term goals are:
- Saving for a vocation or wedding
- Buy a car or house
- Pay Off Student Loans
- Create an emergency fund
- Put money into health savings
- Start an investment fund
- Start a side hustle
- Opt for Life Insurance
- Pay off credit card debt
- Improve your credit score
- Learn more about personal finance
How to Achieve Short-Term Financial Goals?
There are various ways to achieve short-term financial goals, which are:
- Use the SMART (specific, measurable, attainable, relevant, and time-bound) method
- Reward yourself
- Track your goals
- Start small
- Visualize the fine line between the different types of goals.
- Work backward
- Schedule your goals.
2. Mid-Term Financial Goals
Mid-term goals are those that one can not easily achieve. However, they shouldn’t require too many years to accomplish. The usual time duration to accomplish your goals is one to five years.
These goals are more expensive than your daily goals, but you can achieve them with determination and hard work. In general, one should have three to four mid-term goals in different areas of life, including life skills, career, fitness, education, and personal finances.
Some examples of mid-term goals are:
- Increase Savings Rate
- Save for a Down Payment on a House or Car
- Pay Down Mid-Interest Debt
- Build an Emergency Fund
- Develop a Budgeting System
- Start a Family Savings Plan
- Contribute to a Health Savings Account
- Maintain a healthy Work Life Balance
- Review Your Tax-Deductible Expenses
- Revisit Your Credit Reports
How to Achieve Mid-Term Financial Goals?
One can achieve mid-term goals by the following means:
- Prioritize your goals
- Divide your goals into smaller steps
- Schedule your goals
- Track your deadlines
- Schedule goal review sessions
- Schedule catch-up sessions
- Use SMART method
3. Long-Term Financial Goals
Long-term goals usually require more than five years to become achievable, which is why they require more money and longer commitments.
These goals require keen and careful planning for your investment strategy. Some examples of long-term goals are:
- Emergency Fund
- Retirement Plan
- Paying off your debt
- Child Education Fund
- Become Financially Independent
- Build Investment Portfolio
- Opt for Life Insurance
- Debt-Free Living
- Real Estate Investment
- Pay Off Mortgages
- Cut off Your Expenses
How to Achieve Long-Term Financial Goals?
Let’s throw some light on how one can achieve long-term goals. Some important aspects are:
- Jot down the goals
- Regularly review the list of your desired goals
- Eliminate risk factor
- Managing debt
- Budgeting and saving
- Stay invested for a longer period
- Take assistance from a financial advisor
11 Best Examples of Financial Goals
1. Build an Emergency Fund
Saving for an emergency fund is often called the smart example of financial goals. It is a cash fund that can include months or years in some cases, which is worth living expenses. The major reason behind this strategy is to face unexpected situations like job loss, major home or car repairs, medical bills, etc. You can afford these circumstances if you have a stash emergency fund.
2. Save for a Down Payment on a House or Car
Real estate is an appreciating asset (an increase in the value of fixed assets), so buying a home instead of spending money on rent is the best way to remove future expenses.
However, remember that the money you will require to save for a down payment will be based on the type of mortgage you get and the cost of your dream house. At least 20% of the down payment on a conventional loan can remove the private mortgage insurance requirement and reduce your interest rate.
3. Pay Off Debt
Credit cards can offer you quick access to the funds in case you need them the most, but carrying the baggage of that debt can deteriorate your financial progress. Paying off your credit card debt monthly without interest could be a great way to achieve your financial goals.
Using different approaches will help you reduce your debt. The first one is the avalanche method, and the second one is the snowball method.
4. Start an Investment Fund
Starting an investment fund is the best way to achieve your financial goals. For this, decide the fund category or the asset class you want to use to invest your amount. Moreover, you can take a help from financial advisor in selecting or telling you the best fund for investment.
After choosing the fund category, work backward and calculate the amount you could save through lump sum investment, SIPs, or a combination of both to reach your goals.
5. Increase Savings Rate
To attain your financial goals, consider putting your money in an online bank account like Axos Bank or Ally Bank, which earns more than a savings account.
An online bank account increases the savings rate if you stay invested for a longer period and permits you to buy and sell investments such as MF, stocks, and bonds with the help of a brokerage account.
6. Contribute to a Retirement Plan
Retirement savings should be on your priority list if you set a financial goal. Contributing at least up to your employer’s expectations is a wicked move. Afterward, you can start increasing your contributions each year.
If you cannot access the 401(k), you can set up an online IRA with discover.com and start your retirement funding there to achieve your financial goals successfully.
7. Develop a Budgeting System
Developing a budgeting system helps create financial stability in your life. Tracking your expenses and following a plan will be more organized and accessible. You can even pay your bills on time, save for uncertainties like car accidents or major expenses, build an emergency fund, and more.
Overall, a strong budgeting system puts people in the driver’s seat to achieve their goals and provides the tools and blueprint to make their financial dreams come true.
8. Start a Family Savings Plan
What would your family like to achieve financially? The list might need to be shorter. If you want to start a family savings plan, how about opening a savings account? You can also opt to open sub-accounts under the primary savings account, which will help you focus on meeting your goals. You can contribute weekly or monthly to your long-term savings account.
9. Put Money into Health Savings
Putting money into health savings is an idle example of achieving financial goals. Your paycheck moves further with pre-tax contributions because you do not pay federal taxes, and the money you put in the health savings account could move further in paying for the family’s health care.
Furthermore, tax-free investment and interest earnings could help you save money for your expenses.
10. Opt for Life Insurance
Opting for a life insurance policy can help your family to meet their financial needs, even if you don’t have enough savings at that time. You need to be sure you can cover your family with their living expenses and pay off debts without any income.
A life insurance policy can help you nurture today and tomorrow so that you can live stress-free.
11. Become Financially Independent
Financial independence is one perfect way to achieve financial goals. It is the ability to live your life freely or on your own terms without being dependent on a paycheck-to-paycheck cycle or worrying about financial constraints or liabilities. However, becoming financially independent requires thorough planning and careful execution.
How to Set Financial Goals?
When setting financial goals, it’s crucial to reflect your aspirations and intentions, which aids in achieving and establishing goals with confidence. Consider some valuable tips for setting financial goals.
Tips for Setting Financial Goals
1. List and Prioritize Your Financial Goals
Jot down your goals (both those you’re already working on and those you are about to start working on). After listing each goal, prioritize it according to your needs and importance. Moreover, including some details like the money required and the time needed to achieve it will be a plus point. This will help you understand what you should do to achieve your goals.
2. Take Care of the Financial Basics
After identifying your goals, see that all your financial basics are covered. Based on financial planning stages, they may be on your list of goals. It’s good to look at them to ensure you’re on track. The list includes paying off debts, building an emergency fund, becoming financially independent, increasing the savings rate, planning a family savings plan, etc.
3. Motivation is a Must for Financial Goals
An objective of setting up a trust is a high desire to feel more secure about your family’s future. Understanding why you need to set a financial goal will help you get more connected to that specific goal and ultimately motivate you to achieve it.
4. Make a Financial Plan to Reach Your Goals
It’s good to make a financial plan to achieve your financial goals. For this, you can seek assistance from Equitable Advisors to understand how aligned you are with achieving your goals. Furthermore, learn how much money you can allocate to your goals to know how to move forward.
5. Regularly Revisit Your Financial Goals
It’s significant to revisit your goals at least once to see your progress chart, adjust your expectations, and review your priority list on which you need to work. With this, you’ll know which goals you’ve achieved and which are yet to be achieved.
Wrapping Up
Financial goals are not always easy to achieve, but if you look into their examples and how to achieve them, things will turn out easier. It becomes crucial for you to understand your goals and then find different scenarios to reach them. So start building your free financial plan now to figure out how much savings you need to make for your emergency fund.
