When you’re living paycheque to paycheque with a mountain of debt, it’s difficult to set lofty financial goals. At this point, paying your bills on time might feel impossible. But even if you’re struggling, financial goal setting is a useful practice and one of the first steps in achieving financial security. Without goals, it’s hard to know what you’re working towards.
A financial goal gives focus and a clear reason to keep working hard. It can keep you motivated when things get tough and can help you turn your financial dreams into reality.
What is a Financial Goal and Why is it Important?
A financial goal is an objective you set for yourself related to your money & finances.
Putting a financial goal down on paper helps you focus your attention. It can help you organize your thoughts and increase your motivation. Research has found that an increase in motivation can lead to improved performance. Eventually, the goal you set can lead to changes in your behaviour.
Bottom line: There’s proof that setting a financial goal can help you get from where you are to where you want to be.
Types of Financial Goals and Examples
Financial goals can vary based on how long they take to achieve. They can also change throughout the different stages of your life.
You can break financial goals into three categories: short, medium, and long-term goals.
Short-term financial goals
Short-term goals are typically goals you can achieve within a year, such as:
- Creating a monthly budget
- Starting an emergency fund
- Saving money for a vacation
- Saving money for a wedding or honeymoon
- Minor home improvements
Medium-term financial goals
Medium-term financial goals are things you want to achieve within one to five years, such as:
- Growing your emergency fund
- Saving for a downpayment
- Saving for your kid’s education
- Paying off your credit card debt
- Improving your credit score
Long-term financial goals
Long-term goals typically have a time horizon of ten years or more. Some examples include:
- Becoming completely debt-free
- Retirement planning
- Paying off your mortgage
- Accumulating wealth
- Helping your children with a downpayment
- Contributing to your grandkid’s education fund
How to Set Clear and Actionable Financial Goals
If you want to set financial goals but don’t know where to start, consider the following steps.
1. Establish your goals
What ARE your short, medium, and long-term financial goals? Do you want to create a monthly budget, save for a home renovation, or put money into a registered education saving plan (RESP) for your kids? Think about what you want, and more importantly why you want it – knowing your “why” will help keep you motivated as you work towards your goals.
2. Create SMART goals
SMART is an acronym and a framework for goal setting. For instance, you might have a goal of creating an emergency fund. This is a good goal but it’s not very well defined. Using the SMART framework you can begin to create a more specific goal. For example:
- Specific. Create goals that are clear and well-defined. For instance, “I want to contribute money to my savings account to build an emergency fund.”
- Measurable. Having established measures can help you to know when you achieve your goals. For instance, consider how much money you want to contribute and how often. “I want to contribute $100 per month to my savings account to build a $3,000 emergency fund.”
- Achievable. Is your goal attainable? Goals that are too lofty can feel overwhelming and cause you to lose motivation. Ask yourself if you have the resources and capability to achieve your goal.
- Realistic. Given your resources, capabilities, knowledge, and skills, is your goal realistic? Are you able to commit to your goal at this time?
- Timely. A good goal should have a set time limit. Without an end date, it can be easy to procrastinate.
Here’s an example of a complete SMART goal: “I want to contribute $100 per month to my savings account to build a $2,000 emergency. I will start saving next month and will finish within two years.”
3. Document your goals
Whether you use a pen and paper, an Excel spreadsheet, or a financial app, make sure you document your goals. Having them recorded allows you to refer back, update, and track your progress.
4. Celebrate your successes
As you make progress and achieve your financial goals, don’t forget to acknowledge your hard work. Celebrating milestones is an important part of the financial goal-setting process and can help to keep you motivated.
Tips For Achieving Your Financial Goals
Here are some additional tips to help you stay committed to your short, medium, and long-term financial goals.
- Know your “why.” Your why is your reason for wanting to achieve a financial goal. It’s also the thing that’s going to give you the motivation to keep working and striving. You have to care about your goal in order to make it happen, so get clear on your “why”.
- Break it down. While you want to dream big, you don’t want to feel overwhelmed by your goals. For instance, if you have a goal of saving $12,000 in five years, this might sound like too much. But, if you break it down into smaller chunks, you realize you only need to save $200 per month to reach your goal. This sounds more attainable.
- Segregate your funds. If you have multiple savings goals, it can help to separate them into individual funds. Keep your emergency fund separate from your vacation fund or the money you’re saving for a downpayment.
- Know when to stop. Once you’ve achieved your goal, stop and move on to your next one. For instance, if you have a goal of saving $5,000 in an emergency fund and you reach your goal, don’t keep adding more money. Start using any extra money you have to achieve a new financial goal.
- Have someone keep you accountable. Simply sharing your financial goals with another person can help to keep you accountable. Partner up with someone else who is looking to achieve a financial goal and keep each other on track.
- Keep living your life. While it’s important to have financial goals to pay off debt or save for retirement, you have to give yourself permission to spend money on things that make you happy. Of course, you want to make sure you can afford it. But, if every cent goes to a savings goal or paying off debt, it’s easy to lose your motivation.
- Speak to a professional. If you need help with anything from budgeting to debt management, you can speak to a Licensed Insolvency Trustee (LIT). A LIT is a debt professional who can assess your finances and help you come up with a strategy to achieve your goals and money dreams. If you need help with retirement planning, wealth management, or financial planning, you can speak to a financial advisor.
Financial Goal Setting: Get Help
No matter where you are on your financial journey, setting goals can help you focus your attention and start working towards the things you want in life. If you don’t know where to start, speak to a Licensed Insolvency Trustee at Allan Marshall and Associates. We can help you create a financial strategy so you can save money, pay off debt, and work towards your financial goals. For a free, no-obligation consultation, call us at 1-888-371-8900, or complete our online contact form.
