Money is an important tool to help us achieve our dreams in life. Without it, we could be homeless, hungry and unhealthy. Everything we do requires money so it is important to set goals to make sure we achieve our vision. Perhaps you have a vision board that helps you to articulate what you want to buy or experience. But what most people haven’t done is to create milestones on how to get to those milestones.
Setting very specific targets, researching how much it will cost and deciding when you want to achieve them are important first steps in your journey.
Here are a couple of simple tips on how to create your financial goals:
#1) Define the goals in 3 buckets
- Short term – these are activities you want to do in the next 1 – 4 weeks. These are things you can purchase without having to save for a long period of time.
- Medium term – there are activities you want to do in the next 2 – 12 months. These usually require a bit more savings.
- Long term – these are activities you want to do next year or after one year. These usually involve large purchases.
#2) Create a plan on how to achieve your money goals
- Define your “specific goal
- Find out how much it will cost
- Define when you want to achieve it
- Break down the total value of your goal and divide by the number of months you want to save in order to afford that goal
- Look at ways you need to adjust your spending habits in order to achieve your savings requirements
Everything we do requires money so it is important to set goals to make sure we achieve our vision.
Whether it is for the medium or long term goal, you should write up the goal in detail and be focused on what is realistic and most important for you to prioritize. For example, if saving for a down payment for a home is important so you can put 100% of your rent towards a mortgage instead of giving it to a landlord, then you should prioritize this goal. Here is an example of a goal planning sheet:
Goal: Saving for kid’s college tuition
Time frame: 2 years
Monthly savings: $10,000 / 24 months = $416.67 / month
Reality check: Can I save this amount per month? If not, look at options:
- Consider saving less for the same time frame (for example $5,000)
- Save for a longer period of time (for example 3 years)
- Increase my income or other expenses by $200 per month if my current disposable income is $200 per month
If you have too many priorities competing at the same time, you will need to prioritize, otherwise you may need to consider making more income in order to achieve all your financial goals.
Things to Consider
Some things to consider when setting long term goals that take years to achieve:
- You may not know the cost of the goal many years from now because of inflation and other erosion to your purchasing power
- You may find that there are unexpected things in life that could impact your plans
If you find that your plans feel unrealistic and unachievable, don’t give up. There are other ways you can approach your goal setting program. If your income is too low, look at ways to offset your expenses with subsidies, grants and government programs. You might even start looking for a job that pays more or other revenue streams (like ecommerce on etsy or ebay) for things you create that you can easily do without taking too much of your time away from your kids.
One key tip throughout all this is to make sure you pay yourself first! Saving is rewarding but taking too much away could deprive you of enjoyment in life. Remember to enjoy the journey to your destination as well!