A recent Forbes article reported that the average American has $65,100 in their savings account, but averages are skewed by outliers. A better representation of how much money Americans have in their savings account is the midpoint value, also known as the median. The median savings amount for American households is only $5,300.
Setting financial goals is one of the best ways to improve your financial health and have a secure financial future. If you’re closer to the median savings amount or have far less in your savings account, it may be time to start setting financial goals.
We’re here to provide you with a five-step plan to set financial goals that can help you increase your savings, plan for your retirement, and provide you with some extra funds to treat yourself.
- Financial goals are personal and professional goals designed to improve your financial well-being.
- Financial goals can be short-term, medium-term, or long-term goals.
- Financial goals can help you build wealth, but it’s also important to set aside money to treat yourself every now and then.
What Are Financial Goals?
Financial goals can vary depending on who you ask, but essentially, they’re personal and professional goals you set to improve your financial well-being. Good financial goals will allow you to work toward a life with less stress about your finances. These goals also allow you to spend money on the things you enjoy without feeling guilty.
5 Steps for Creating Financial Goals
Getting your financial goals in order can seem overwhelming, which is why it’s a good idea to map it out and have some structure. Below, we provide five steps to help you design financial goals that work for you. These steps allow you to focus on what matters most while also keeping you motivated to stay on the right track.
Financial goals can take some time, so it’s helpful to find something that will help keep you motivated throughout the process. To start, make a list of what you want to achieve and details for why these items are important to you. For example, you may include:
- “I want to save enough money to have my dream wedding.”
- “I want to build an emergency fund to afford to pay my bills should I lose my job.”
- “I want to start a retirement fund so I can enjoy my retirement by finally traveling the world.”
- “I want to pay off all of my debt so I can experience less stress and spend without feeling guilty.”
Reminding yourself of your goals and what inspires you are actions that psychologists recommend while pursuing what matters most to you. While vision boards may seem like pseudoscience, Tchiki Davis, Ph.D., explains, “Initial research suggests [vision boards] can help us more easily reach our goals. This may be due to how vision boards help us gain self-awareness and self-reflect on what is important to us.”
The second step is to make a plan that’s specific to you because everyone’s financial situation is different. Take a look at where you currently are with finances to start making a plan. This will allow you to create a plan that will allow you to reach your short-term financial goals and ones that may take a little longer.
The following are some financial goal examples, along with an idea of how to prioritize them.
Learning how to create a budget and then implementing it is a great short-term financial goal. A budget is how you give your financial goals a strong foundation. Your budget will help you monitor how much you’re spending and decrease the likelihood of overspending. It will also let you know if you have extra money to spend on other things.
Planning for your retirement is a long-term financial goal, but you get the most value out of it by starting sooner rather than later. Experts at Vanguard recommend that you start investing in your retirement funds in your 20s if possible. When you start investing earlier, your money has more time to compound, giving you more retirement funds. If you start your retirement later, don’t worry. By putting a little more into your retirement, you may have the ability to catch up for lost time.
Unfortunately, we don’t know when an emergency will happen, so a good financial goal is to start an emergency fund. Many financial planners recommend saving at least three to six months’ living expenses. This can take some time, but it can provide peace of mind should an emergency arise. As part of your budget, you can save a set amount every month to get closer to your emergency fund goal.
Some expenses to consider:
- Rent or mortgage
- Utility bills
- Car payments
- Credit card and other debt payments
Pay Off Debts
Having debt can restrict your ability to achieve your financial goals. Your personal situation should determine how you prioritize this within your budget and other goals. When you get out of debt or decrease it significantly, you can save money on interest fees and improve your credit. This will free up additional funds and help you pursue more of your financial goals.
Investing outside of your retirement fund is one way to generate passive income or have more money for your other financial goals. Your investments will ideally grow over time. If you invest in dividend stocks, these pay out money each quarter based on company profits. You can also continue investing and holding onto your investments to sell later for additional funds.
Finding a higher-paying job is one financial goal many people may overlook. When you make more money, you have more resources to achieve your short- and long-term financial goals. It’s something to consider if your current job doesn’t allow you to budget properly, save for retirement, pay off your debts, or pursue your other goals.
Before searching for a new job, it’s also helpful to consider how happy you are at your current job. One benefit of financial goals is that they can help decrease stress and increase happiness. Leaving a job that makes you happy may counteract the benefits of making more money.
It’s easy to get off track with your financial goals, so it’s helpful to organize your individual goals to improve your chances of success. A popular strategy for creating and managing goals of all types is to make S.M.A.R.T. goals. S.M.A.R.T. stands for:
If your goals are vague and unrealistic with no time frame, they will be much harder to achieve. Using the S.M.A.R.T. goal strategy helps you make a plan relevant to what you want to accomplish within a realistic amount of time.
Let’s say you want an emergency fund with $5,000. An example of turning this into a S.M.A.R.T. goal would be, “By next year, I’ll have an emergency fund of $5,000 by saving $416.66 each month.”
If these numbers are unachievable for your financial situation, that’s OK. Make adjustments and see what works for your financial situation and your budget.
4. Keep Track of Your Goals
Keeping track of your financial goals can help you stay on the right track while also keeping you motivated. The S.M.A.R.T. model includes measuring your progress, and this is where the motivation comes from. Whether it’s paying down your debts, adding to your emergency fund, or saving for retirement, seeing the progress can inspire you to continue.
People commonly overshoot their financial goals and leave no room for spending on themselves. Treating yourself as you pursue your financial goals is important because it can feel like a chore. Sometimes, it’s also difficult to maintain motivation as you pursue your long-term goals. Part of setting financial goals is having extra spending money to do something fun occasionally.
Maybe you want to save money for a big purchase like a relaxing vacation or new furniture. Be sure to include these as you create your goals. When creating your monthly budget, you can also create space for extra spending money to make sure you take the time to enjoy yourself each month.
Improving Your Credit Is a Financial Goal Priority
If you don’t have a good credit score, it can be difficult to achieve your other financial goals. Lower credit leads to additional interest fees, higher deposits, and potentially more debt. Making your credit a priority will improve your ability to pursue all your other financial goals.
Credit.com has a variety of credit tools and services to assist you while you work on your financial goals. You can start by getting your free credit report card to see where your credit stands. We also offer our ExtraCredit® service, which includes credit monitoring, rent and utility reporting, and more.
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