Wishing for financial independence is easy compared to actually achieving it. Everyone hopes for a more secure financial future, but only a few know how to get there. So if you’re unsure where to start, don’t worry—setting and reaching your financial goals is simpler than you might think.
So, keep reading! We’ll discuss how you can set and achieve your financial goals.
FINANCIAL GOAL SETTING
Clarifying your desired outcomes is the first step in financial goal setting. But what does “financial goal” mean, exactly?
A financial goal is simply a target that you set for yourself regarding your finances. For example, it could be putting away money for a down payment on a home, funding a secure retirement, or eliminating all personal debt.
Once you know your financial goal, you can proceed to financial goal setting. Financial goal setting is creating a concrete, tangible plan or roadmap with specific steps on how you’ll achieve your goal.
Financial goals are more likely to be successful if they are “SMART” or “specific, measurable, attainable, relevant, and time-bound.”
SPECIFIC – Your objective should be as clear and direct as possible. A goal like “save more money” is too vague—you need to define how much money you want to save and by when. For example, a specific goal would be, “Save $1000 by 31st of December 2022.”
MEASURABLE – An indicator of your progress toward your objective is essential. In the example above, you would measure your progress by the monthly money you saved. So, if your goal is to have $1000 in 12 months, you must put away approximately $84 each month.
ATTAINABLE – When setting your goal, ensure it’s something you can achieve. The plan to become a millionaire in two months is likely unattainable, especially if you’re living paycheck to paycheck.
RELEVANT – Your goal should have personal significance and improve your financial situation. For instance, the plan to be debt-free or save funds for emergencies is relevant because it will directly impact your life.
TIME-BOUND – Every goal needs a deadline to keep you accountable and motivated. On the other hand, the lack of a deadline makes it easy to put off accomplishing a goal indefinitely. For example, the goal to have $500 for an emergency fund by December 2022 or to become debt-free by May 2025 are both time-bound goals.
When you finally set a SMART financial goal, it’s time to reach them with a plan of action.
REACHING YOUR FINANCIAL GOALS
Your financial goal will remain a dream if you don’t take actionable steps to make it a reality. However, before taking action, you must evaluate first your current financial situation. It’s like making a financial analysis for a small business in which you’ll look at your existing assets, income, savings, expenses, debts, or even your credit score to identify where you currently stand and want to be. After that, you can start taking steps toward your financial goals.
Follow these suggestions to improve your financial situation.
Preparing a Budget Plan
Creating and sticking to a budget is one way to reach your financial goals. With these, you can track how much money you make and spend, so you know where your money is going and where you can cut back, if necessary.
There are many approaches to budgeting your salary or income, but the simplest is the 50/30/20 rule. This rule says that you should allocate 50% of your income to essential expenses (think: housing, food, transportation, and healthcare), 30% to non-essential or discretionary spending (like entertainment and dining out), and 20% to savings and debt payment.
Make a Debt Repayment Plan
If you have debt, it’s important to factor that into your financial goals. Start by figuring out how much debt you have and what the interest rates are. Then, create a repayment plan.
Some of the popular approaches to debt repayment are the debt snowball method, in which you’ll repay your debts from smallest to largest, regardless of interest rate. Or repaying your debts using the avalanche method entails working your way down from the debt with the highest interest rate to the one with the lowest. Whichever way you choose, make sure you stay disciplined and make your debt repayments a priority.
Cut back on unnecessary expenses.
One of the easiest ways to save money is to cut back on unnecessary expenses like eating out less often, cutting back on cable or streaming services, or shopping less frequently.
Your ability to achieve your financial goals may be significantly impacted by even minor adjustments to how you spend money. Consider where you can make reductions in your expenses. You may be surprised by the amount of cash you can save.
Set up automatic savings
One of the best ways to reach your financial goals is to automate your savings. The automatic transfer of funds from your checking account to your monthly savings account is a great way to ensure you’re always saving something, even if you don’t have much extra money at the end of each month. And this will help you get to your goals faster and with less work.
Create another stream of income
Your current employment might not be enough to help you reach your financial goals. If that’s the case, you might need to create another income stream.
There are a few different ways to do this, but some popular options include working a part-time job, investing in real estate or the stock market, or even building wealth through good debt, like making a small business loan. So there are endless possibilities when creating another source of income. You just need to be creative and willing to do some extra work.
Invest in Yourself
Investing in yourself is one of the best financial investments you can make. It will make you happier and more fulfilled, leading to better job opportunities or promotions and higher earnings.
Some ways to invest in yourself include taking courses or getting certifications in your field, networking with industry professionals, and reading books or blogs related to your career. It can be a bit of an upfront cost, but it will pay off in the long run.
Setting up a financial goal is easy, but reaching it requires dedication, effort, and discipline. So, always keep your financial goals in mind at all times to stay on track and make better decisions when it comes to spending and saving. And, if you ever be tempted to spend money on something that’s not part of your plan, ask yourself if it’s really worth it.
Remember, reaching your financial goals is possible if you’re willing to put in the work. So don’t give up and keep pushing towards your goals. You’ll be glad you did when you finally reach them.