How to Set Financial Goals for Yourself
When you are just starting out on setting and subsequently balancing your financial goals, it is easy and natural to feel overwhelmed and lost. In situations like these, start by asking yourself this question: What does success mean to you?
For some people, success is but a luxurious lifestyle which brings high-end cars, big houses and tons of cash to spend on. For others, it means owning a business, getting financial freedom, gaining financial security, and not having to worry about money any more. What you need to do right now is close your eyes. Yes, close your eyes and visualize your future, or rather how you want your future to be like. In such visualizations, you can set aspirations and align values. As you are making a plan, make sure to leave room enough for your immediate goals.
Find what inspires you: In this phase, think on not just those things which you do or have to do, but why you want to do these things. When you have a reason for your goals, you get a whole new level of perspective and get a ton of motivation. For instance, you know you have to build up an emergency fund or you won’t be able to pay rent. Or you need to get rid of your debit card debt fast so that you can start building up a fund for your own wedding. Both of these are motivating factors, right?
When you set goals, you make doubly sure that you’ll be successful.
Know more about your situation: You have given your situation some thought, and you have discovered that you have more than one goal. This leads to a bit of analysis paralysis, and you are confused about the next step. On the other hand, it may also happen that you do not have any specific goals. That is fine, don’t worry about it. Here’s what you should do.
Make sure that in trying to understand your situation thoroughly, you don’t end up in anlysis paralysis.
a) Start with assessing your net worth, income tax situation and income: When you have a good understanding of these things, you will find that it is easier to determine goals and to prioritize for them as well.
b) Check up your financial health: This is an important point. The more your score is, the more flexible you can be when achieving your goals. If you have a low score, it means that there are some goals that require your attention.
To tackle problem areas, here’s what you can do:
a) Make a budget
b) Start creating your emergency fund
c) Start saving for retirement
d) Pay off your debt
Create SMART goals: SMART goals stand for Specific, Measureable, Achievable, Realistic and time-bound. You want all of your goals to have each of these elements. So how does it work in real life? Let’s say that you are planning to go on a vacation.
First, lay out all the details. This means picking a destination, deciding when to go and estimating the cost. You then determine if the trip is worth taking given your savings, income and expenses.
If the goal is too high, make adjustments or even scrap it. So maybe you have not saved enough to go on a 6-month vacation in Europe. So what? Postpone the trip for a year or two, save up for the time being, automate your savings, and open new savings accounts that give higher interest along with sign-up bonus.
Write down your goals: By now, you know what your goals are. It is time now to write them down. When you do this, your goals become tangible, clear and organized. Put all this in a document that you can easily keep track of. Completed one goal? Move on to the next.
Treat yourself
The past few steps were not easy, were they? Setting and achieving goals is not easy. This is why you need to reward yourself for every step of progress you make. For instance, if you have built your emergency fund, reward yourself by starting a business or by buying a new car.
