When it comes to personal finance, everyone has a different situation. No one pays the same amount when it comes to bills, rent or debt, and everyone has a different ideal lifestyle they wish to live. However, no matter what you’re wanting to achieve next year, you’ll need specific and measurable financial goals to help you.
What are financial goals?
A financial goal is a monetary target to aim for when managing your money. Your financial goals can relate to saving, spending, earning or even investing.
Financial goals can often be grouped together with your budget and financial plan but it’s important to remember that your financial goals are completely separate. Financial goals are specific and measurable milestones that when reached, bring you closer to the overall lifestyle you’re after.
If you’re planning your budget for the next year, having specific financial goals is crucial. Without a financial goal in mind, you may lose sight of what you’re saving for and it will be harder for you to stay motivated.
The benefits of setting financial goals
When you have clear, realistic and measurable financial goals, it’s easier to achieve them. Writing them down also helps keep you on track and is an effective method that’s used even by CEOs and professional athletes.
Another advantage of setting financial goals that’s often overlooked is the positive impact on your mental well-being. We’re programmed to feel relief when we believe we are in control. Creating financial goals allows you to take back control of your finances.
Setting achievable financial goals also helps you visualise your future and what your success looks like. It’s something that can excite and motivate you.
The types of financial goals
Financial goals are the long-term, mid-term and short-term plans you have for your personal finances. It’s helpful to create financial goals that are SMART.
The difference between a SMART financial goal and a regular financial goal is that a SMART goal can be tracked and measured, with a competition date. There is nothing worse than having a goal that never ends.
SMART goals can be defined as:
If you had a financial goal of “saving for a house deposit”, the way to turn it into a SMART goal would be to add specific parameters that make it achievable. For example, adjusting “saving for a house deposit” to “save $400 a week over the next 18 months to put towards a deposit for a house”. With just a few changes, you already have a clear idea of how much you need to save per week to achieve your end goal.
Short-term financial goals
Short-term financial goals are usually for things you’d like to afford in the near future (usually within one to two years) such as family vacations, a new laptop or creating a new budget.
Mid-term financial goals
Mid-term financial goals are ones that take about five years to achieve. They are a little more expensive that an everyday short-term goal but still achievable. Paying off your credit card debt, a new car or raising enough capital to start your own business.
Long-term financial goals
Long-term financial goals are usually plans that take more than five years to achieve. Saving for your children’s tertiary education, paying off your mortgage and financial security for retirement are some examples of long-term financial goals.
It’s not uncommon to have several short-term and mid-term financial goals inside your long-term goal to help you stay motivated.
Tips for setting achievable financial goals
On top of creating SMART financial goals, creating achievable goals requires a high level of financial literacy. You first need to understand the personal finance basics if you’re to use your money in a strategic way.
If you feel like you’re lacking in the financial literacy department, consider making one of your financial goals about improving your financial literacy. Knowing the basics will not only help you in the long run but give you the confidence to create more complex financial goals as your personal wealth grows.
Your financial goals are unique to you so it’s important that they represent what you truly want to achieve. According to financial psychologist, Dr. Brad Klontz, you can use financial psychology to achieve your goals. In his article for CNBC’s Invest in You: Ready. Set. Grow.” Column, he explains how you can use financial psychology to crush your saving goals. Some of his tips from the article include:
- Create goals you’re passionate about
- Link your passion and excitement to the financial goal by naming it
- Put a date on your financial goals
- Create a visual representation of your financial goals, and
- Set up automatic payments.
How financial planners can help you with your personal finance
When you work with a financial planner on your financial goals, you’ll feel more confident knowing that your future plans are achievable. If you’re not tracking your goals, or don’t know how to, a financial planner can help put the right strategies in place and review your goals to make sure they are realistic. Annual financial planning also gives you the opportunity to review and update your goals as well as check how well you’re progressing.
Creating a financial plan and goals, are one thing but sticking to them is the challenging part. With a financial planner by your side, you’re more likely to stay on track. Having a financial planner is also beneficial when you move through major milestones. As you achieve your financial goals, they can be there with you to help you on your new journey. Get in touch with our financial planners to see how we can help you with your financial goals today.