Anyone can dream of being rich. It’s not hard: you think of the picturesque villa you’re going to have and imagine what you’ll ask your personal chef to make you for dinner. But financial goals generally don’t come true unless they’re grounded in reality and solid, workable principles. Here’s how to set financial goals that actually deliver results.
Set Goals the Right Way
There’s a right and wrong way to set financial goals. The wrong way is to have a vague, big goal and then wing it. You can work as hard as you want, but it’s unlikely to come true.
The right way is to set specific financial goals for the short-term, medium-term and long-term. Organize your priorities and assess how much you’re saving. Make a short term plan for how to get to a certain level of savings then a medium-term plan for the coming month or year where you make a larger purpose or investment, then a long-term plan that could include things like opening a new business, buying a home or making another major purchase or investment.¹
Setting financial goals that will come true requires total honesty. Don’t plan to save half your salary each month when you know that your expected and unexpected expenses aren’t going to allow that.
Don’t plan on an investment going up forty percent when you know just as well that it could go down forty percent. In fact, you should consider investments as frozen money that is no longer counted in your budget. Taking a hard look at your finances, including hiring an accountant to help you do a budget or downloading a budgeting program or app will help you set realistic financial goals that you can achieve.²
Be Ready for Emergencies
No matter how well you plan, the unexpected does happen. This includes medical and personal emergencies, job loss or family crises. Sometimes these issues require some up front money, and you should have this set aside. Keeping at least $1,000 to $2,000 as an emergency fallback fund is a good benchmark, although the amount depends entirely on how much you can afford to set aside and what kind of emergencies you can anticipate.³
In setting productive financial goals it’s important to always be SMART (Specific Measurable Achievable Realistic Time-Specific). What this means is to make your goals specific: save ___ to get a new house, or invest 15% of savings in ____ mutual fund, for example. Measurable means that you commit to actual percentages or dollar amounts rather than just general ideas or ballpark figures. Achievable means it is realistic and can be done. Realistic means is it within your current means and doesn’t require a miracle or new amazing job to accomplish and time specific means that your goal has a deadline.²
Get Credit Card, Student Loans and Other Debt Paid Off in Full
The silent deadweight on all your financial goals is debt. It’s key to set goals that involve paying off your credit card debt, student loans and any other funds you’ve borrowed. Trying to put off repaying debt or avoiding it until down the road can sink even the best of financial goals.
If you haven’t gotten rid of what’s sinking you down then you won’t be able to rise above. It’s just basic physics (and basic financial goal-setting). If you just don’t have the money then look at decreasing the amount of your installments to pay off the debt: either way make absolutely sure you’re paying it off in some amount, however small and gradual.¹