Everyone knows that if you want to achieve something, you better set a goal. However, very few Americans know or know how to set financial goals. according to Schwab Modern Wealth IndexOnly 33% of people have some type of written plan or goal.
What’s worse? the Financial Health Network It was found that only 29% of Americans are financially healthy.
Mmm…it doesn’t take high-level calculations to know that there’s likely a correlation. You will perform better financially if you have financial goals.
Financial goals help you feel better and perform better
Your financial goals and plan will enable you to:
Stop worrying and feel more confident
The American Psychiatric Association reports that 70% of adults worry about money. Setting goals has been proven to help reduce your financial stress and put you on track toward the future you want.
The Schwab study found that people with a plan are at least 25% more likely to feel financially stable.
Avoid problems and generate wealth
The more you can achieve your goals, the more problems you can avoid and the more wealth you can create. Setting goals and planning your money allows you to get ahead on taxes, savings, and more.
When disaster strikes, it would be best to be able to weather the storm. In fact, people with a comprehensive financial plan are 32% more likely to have an emergency fund.
People who set goals and have a written plan are:
- Nearly 20% are more likely to avoid debt problems
- 31% are more likely to consider taking risks when investing, setting themselves up for success
- 26% are likely to be aware of fees and investment costs and avoid them
- 24% more likely to rebalance regularly
Make better decisions
Every financial decision you make affects your money today and throughout the rest of your life. By making these decisions in the context of your short- and long-term goals, you are more likely to be successful and happy.
There are 4 types of financial goals
Although any financial goal setting is good, you can get better results by setting goals in all of the following categories:
- Process-oriented financial goals
- Short-term financial goals
- Medium-term financial goals
- Long-term financial goals
Keep reading to learn more about personal financial goals in all of these categories.
1. Operations-oriented financial goals
Process-oriented goals are about “how” you achieve something, not about “what” you want to achieve. A process-oriented goal is one you set for how you will achieve your goals.
So, setting process-oriented financial goals is a way to help you ensure this success. It will help you build habits of wealth and security.
You can set process-oriented goals around the questions who, what, when, where and why:
A. What and where: creating systems
What types of systems do you want to set up to track and manage your savings, spending, and earnings goals? Spreadsheet? notebook? A planning system like the Bouldin Retirement Planner?
for. When: Select time frames
How often do you want to check your key financial metrics? Some people settle their accounts daily, others settle their accounts monthly, some quarterly, or even semi-annually or annually.
The more the better. Make financial planning a habit!
C. Who: Get approval from your family
If you are single and do not have any family, your financial planning will be easier.
Everyone else, your planning needs to buy from everyone who will or may cost you something in the future.
Most importantly, you need to plan with your spouse. Here are 8 topics to address if you want to survive retirement with your spouse.
2. Short-term financial goals
Short-term financial goals are things you can achieve sometime between today — yes, you can cross something off your list today — and the next few months.
Here are 7 important short-term financial goals:
A. Create an emergency fund
Having an emergency fund — cash equivalent to three months to a year’s income — is essential to your financial well-being.
An emergency fund is crucial to prevent you from racking up debt or having to compromise if things go wrong.
Learn more about how to create an emergency fund and why it’s important. Or learn about the best (and worst) sources of emergency funds.
for. Develop habits of observation and learning
The most actionable thing you can do to improve your financial prospects is to develop financial habits. This often means setting aside an hour each week to dedicate to learning about money. Use this time to evaluate your budget, check your savings, and learn about personal finance.
C. Set a goal to set goals: Identify your short- and long-term financial needs and desires
Do you know how much you need to retire? How much money should you have in an emergency fund? What would it cost to send your kids to college, help fund your parents’ long-term care needs, buy a home or second home, fund health care, or pay for the vacation you really want?
Maybe none of this applies to you. Even so, you want something in the future.
It’s really important to know – now – how much you will need to live the life you want to live.
Do you have difficulty envisioning your future wants and needs? Here are 7 ways to imagine the future you want.
Once you know what you want, a Bouldin Retirement Planner can help you see the numbers you need to achieve and create a comfortable plan to achieve your goals. Find out if you’re on the right track and get lots of ideas on how to make better decisions.
D. Increase savings rates if necessary
Once you determine your near- and long-term financial needs, you may know that you need to save more. Make a plan to increase your savings – perhaps gradually, over time. To make goal setting achievable and meaningful, you must be specific and detailed. For example, you might say you’ll save an extra $5 each day or try to save $500 a month, 50% of which will go toward retirement and the rest for other savings goals.
Automation: Not sure how to save more? Automating savings is one of the best things you can do today to set you up for a better future. Automating savings (especially if you schedule raises to coincide with salary increases) ensures savings happen.
Want more tips on how to save more? Here are 22 smart and easy ways to dramatically increase your savings!
e. Prepare a monthly budget
Tracking how you spend your money is a crucial component of financial well-being. Budget will help you:
- Expenditure management
- Reaching goals
- Save money
- Reduce stress
- Give you a feeling of control
The budget doesn’t have to be detailed, just write down how much you earned, how much you spent (and on what), as well as how much you saved. Make sure your expenses (including savings) are less than your income.
and. Create an investment plan
It’s not enough to save money. You should invest it efficiently and appropriately for your personal situation – age, risk profile, needs and time frame.
The investment plan is not related to actively trading stocks. An investment plan is a thoughtful document that outlines your goals for your savings, strategies for achieving those goals, a framework for making changes to your investment plan and options for what to do if things don’t go as expected.
An investment plan is one of the best short-term financial goals you can achieve because it sets you up for long-term success.
Learn more about creating an investment policy statement. Or set up a free discovery session with a fee-only financial advisor to evaluate how they can help you set up investments that you can manage yourself.
g. Do you have debts? Make a plan to get rid of it
Like making a plan to save more and invest strategically, you’ll also need to set goals to get rid of debt — especially high-interest credit card debt or student loan debt. Here’s how to pay off debt: 12 ways to reduce these expenses for long-term prosperity.
We also highly recommend documenting your debts in a Boldin Retirement Planner and running scenarios to accelerate debt repayment. See what happens to your wealth and security throughout your life. This exercise can be powerful, fun, and very motivating.
3. Medium-term financial goals
Medium-term financial goals may take the next five years – or less – to achieve, depending on the trade-offs you are willing to make.
A. Boost your credit score
Credit rating agencies and other services can give you great tips to boost your credit score. A good credit score can help you get advantageous loan terms.
Your credit score is especially important if you are going to purchase a property in the future. However, your credit score can also affect the interest you pay on credit cards and your insurance rates.
for. Create a long-term tax plan
Creating a long-term tax strategy can ensure you have a more secure retirement and can help you keep more of your hard-earned money.
The Boldin Retirement Planner enables you to see the potential tax burden in all future years and get ideas for reducing these expenses. It takes careful thought, but strategic planning for Roth conversions, taxable income transitions, and more can lead to significant lifetime savings.
C. Think about how you want to spend your time
Over the course of your life, you will earn a limited amount of money. Likewise, you have a limited amount of time to spend.
When thinking about financial goals, how you want to spend your time is crucial. Do you want to:
- Are you working harder to boost your income moving forward so you can save more now?
- Should you get a second job so you have a better chance of achieving early retirement?
- Enjoy your life now, but work a little longer (probably not a big deal if you really enjoy your work)?
- Do we have to cut back on spending dramatically in order to squeeze out as much savings as possible?
Your income, what you spend, and what you save are related to your financial choices and lifestyle.
D- Getting rid of debts
If you set a short-term goal to create a plan to get out of debt, your medium-term goal is to eliminate debt from your life.
Debt is a major threat to your financial well-being. Going into debt against things that provide utility – such as a mortgage or a car (especially at a low interest rate) – is acceptable. However, credit cards and other high-interest debt can be a fire in your finances.
e. Early retirement!
Yes. It’s entirely possible to make a medium-term retirement plan – no matter your age.
Youth retirement: You may want to learn about Financial Independence and Retire Early (FIRE). FIRE is essentially about making some important lifestyle choices right away to try to accumulate a significant amount of savings that will free you from having to work. FIRE followers are retiring in their 20s and 30s! Learn more about fire.
Retirement from middle age to before 65 years: About half of Americans retire early — usually at age 61, but many people stop working in their 50s. With a plan, you can achieve this goal. Here are some resources to help you plan:
4. Long-term financial goals
There are two main long-term financial goals:
A. Achieving retirement or financial independence
You can retire when you’ve saved enough money and earned enough income to last you the rest of your life – no matter how long it takes.
However, as you move into retirement, you will still have goals and metrics to achieve. Do you want:
- Create a retirement withdrawal plan for your assets – Instead of figuring out how to save, you now need to determine the most efficient way to spend
- Your investment plan may evolve
- Taxes, medical costs, a long-term care plan, a lot of Plans B, C, and D — anything that might not go as expected — are all really important for a secure future.
- You need an income plan for retirement — and you better find ways to ensure that income for the lifetime of you and your spouse
- And much more…
B- Leaving the estate to the heirs
In addition to retirement, another long-term goal for many people is to leave something to heirs — either money, or in many cases, your home.
Use the Boldin Retirement Planner to track and manage your short, medium, and long-term goals, including being able to see what type of property you may be able to leave behind.
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