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How to Set Financial Goals

Setting financial goals is an important step in planning for the future. We break down each step so you can get closer to your objectives.

Whether it’s buying a house, starting a business, or sending kids off to college, we all have goals we want to achieve throughout our lifetimes. But without proper goal setting, it can be hard to fulfill them. By pinpointing what you want to accomplish, as well as how you want to get there, you can more easily find success.

Financial goal setting isn’t as simple as knowing what you want to achieve. It involves several steps that allow you to turn your dreams into action. In this article, we’ll break down how you can set benchmarks and create a roadmap to reach them. We’ll also explain why the help of an advisor can be invaluable as you venture out toward your ambitions.

Below is a step-by-step guide to how you can set effective financial goals, no matter how ambitious:

1. Assess Your Current Situation

The first step toward establishing your short- and long-term goals is to assess your current situation. This involves taking some time to think about how your finances are now, and where you’d like them to be in the future. In terms of how things are for you presently, you should consider aspects like:

  • Income
  • Debt
  • Mortgage payments/rent
  • Car loans
  • Savings
  • Whether you have a retirement plan in place
  • Current interest rates
  • Whether you have an emergency fund
  • Net worth – what you own vs. what you owe

Most of the above deals with figuring out your cash inflow versus outflow. Understanding this allows you to implement important techniques, such as budgeting, saving, and investing, which significantly help you reach your objectives. It’s also important to know how much money you currently have on hand, just in case of emergency or so you know how much to save to reach your target.

2. Define Your Goals

Next, it’s time to figure out exactly what your goals are. Here, it’s important to be as specific as possible. For instance, if you’d like to have enough to retire, it’s key to figure out how much you’ll need annually to do so comfortably.

You should also avoid setting overly ambitious or lofty goals with vague details. Some examples might include “I want to be rich” or “I want to be retired young.” Rather, you should take those targets and break them down into smaller, more actionable benchmarks. One rule that breaks this down is the S.M.A.R.T. criteria, which refers to the following:

  • Specific. Your goals need to specify exactly what you want to accomplish.
  • Measurable. It’s important to shoot for targets that you can track and monitor. This way, if your progress isn’t where you want it to be, you can tweak and adjust.
  • Attainable. Being ambitious is no problem, but as you try and reach your larger goals, be sure to hold yourself to reachable ones. For example, let’s say you want to pay for your child’s college. An attainable goal would be to say, “I’d like to have $55,000 saved up for my son’s education by the time he turns 18.” This is both specific and attainable, provided you have the income to do so.
  • Realistic (or relevant). Given your circumstances, you should aim to set goals that are realistic to your situation. Another rule here is to set targets that are relevant to your life.
  • Time-related. It’s crucial to set deadlines for your goals, as this will hold you accountable for reaching them. For instance, you might aim to build an emergency fund in one year by saving a portion of your monthly income.

You should also categorize your goals in the short- and long-term. A short-term benchmark can be one of two things. First, it could be a target you’re looking to hit very soon, such as buying something or saving enough in an account for emergencies. But it could also build toward a longer-term goal (much like the SMART method). Here are some examples:

  • Building a substantial emergency fund
  • Creating a budget
  • Paying off debt (car loans, credit cards, etc.)
  • Establishing an investment strategy
  • Buying a house
  • Signing up for a life insurance policy
  • Establishing an estate plan

Long-term financial goals often take careful planning and hard work to achieve. This includes:

  • Planning for retirement
  • Becoming a millionaire
  • Paying for your children’s college
  • Paying off student loans

3. Develop an Action Plan

Now that you’ve identified your goals, it’s time to take steps to achieve them. Of course, what you do here depends on the targets you have in place. Later on, we’ll discuss how a financial advisor can help you with this step. But for now, we’ll break down how you can do so on your own or with an expert.

Financial goals take consistency and effort to reach, no matter what they are. For example, if you plan to save for retirement, it will require you to constantly put money away, as well as invest frequently and wisely to reach your goal. Reaching your benchmarks also includes taking time to think about where your money is going, and how you want it to work for you (i.e., investing).

As you create an action plan for your money, think about where you’re investing and saving your funds for the biggest possible returns. This includes implementing strategies like asset allocation and diversification, which can pay dividends for preventing risk in the long run. You should also consider how long it will take to reach your objective, as this will inform how aggressive (or passive) your investment strategy will be.

4. Creating a Budget

Creating a budget is another effective way to reach your goals. According to a 2023 Axios study, over 20% of Americans said they spent more than they earned in 2022. With a proper cash flow plan in place, you can save more so you can more easily reach your goals.

Budgeting involves looking honestly at your spending habits and finding ways to cut costs. For example, consider a situation where you make $5,000 a month, but spend $6,500. In this case, you may be able to cut down on expenses, such as excess groceries or subscriptions, that are wiping out your earnings. Then, with the money you’re now saving each month, you can put it toward your goals, such as retirement or building a substantial investment portfolio.

5. Monitor and Adjust

A key aspect of reaching your goals is constantly tracking your progress. Doing so allows you to look for opportunities to improve. Or it lets you know you’re on track, which means you should keep doing what you’ve been doing.

In terms of your finances, you can track your targets by looking at various metrics, such as:

  • Account balances
  • Investment returns
  • Transactions

Remember that it’s normal to shift your financial objectives over time. As your life changes, so may your long-term desires. If you experience a significant change in your daily life, it’s never a bad idea to revisit your goals and see if you’d like to adjust.

6. Seek Professional Advice

At times, reaching your goals on your own may be overwhelming, especially if you lack the knowledge to get there. This is why it can be extremely helpful to hire a financial advisor to help you map out an action plan. A professional can work with you to identify attainable targets, then put together strategies that allow you to achieve them.

It’s important to work with an expert that aligns with your goals, as well as puts your best interest first. If you need help finding one, we recommend you use a free matching tool. After you fill out a short quiz about your current situation and objectives, it’ll match you with up to three vetted advisors near you.

Frequently Asked Questions

Why is it important to set financial goals?

Without goals in place, you may have no idea where you’re headed or what you want. Setting clear and attainable benchmarks helps you progress toward financial success, whatever that looks like for you.

How do short-term goals differ from long-term goals?

Short-term targets are those you want to be able to achieve sooner than later. They can help you build toward long-term goals. They can also can be one-offs you want to achieve shortly, like buying a house or going on vacation.

Long-term goals are typically more ambitious because of the time investment needed to pull them off. This includes objectives like retirement or gaining a higher net worth.

What is the best way to achieve long-term financial goals?

The most effective strategy to achieve long-term goals is knowing exactly what you want to accomplish and consistently working toward them. The latter involves setting smaller, more attainable targets that allow you to build toward the long-term one. This way, achieving your more ambitious benchmark will feel clearer. It also allows you to experience confidence-boosting victories faster, hopefully keeping you on track.

What are some examples of financial goals?

Financial goals vary for each person, but typically they involve things like:

  • Paying off debt
  • Saving for retirement
  • Education planning
  • Creating a budget
  • Building an emergency fund
  • Estate planning

These goals can be either short- or long-term. But no matter what you’re hoping to accomplish, it’s important to have a plan in place to get there.