Are you ready to slay your financial goals?
I know it can be daunting. We all want to make better money decisions, but refining what that means and turning it into an action plan sounds terrifying.
Relax. We can help.
Let’s transform financial goal setting from a dreaded chore into an empowering experience.
What Are Financial Goals?
A financial goal is something you wish to achieve related to money. Broad examples include things like:
- Buying a House
- Financial Security
- Saving for Retirement
- Building an Emergency Fund
- Paying off Debt
While these are the most common financial goals, none are really “good” financial goals. They’re too broad, lack focus, and don’t provide any information on what you actually have to do to achieve it.
No wonder you can’t achieve your financial goals. They seem like lofty, ethereal dreams.
It’s time to reframe them.
We will transform your dreams of a better financial life into something actionable you can achieve.
Making Effective Financial Goals
It’s time to change those lofty dreams of what you wish you could have into practical financial goals.
Here’s how to do that.
Defining Your Goals
Successful goals have two major components: they’re specific and answer the crucial question “why.”
“I want a lot of money” isn’t impactful. It’s not specific and doesn’t tell you anything about what you really want.
“I need to save $5000 in an emergency account” is much more effective, as you have a target and a reason.
The Why is Crucial
Your “why” is a crucial aspect of a money goal. If you don’t have a reason, you may as well wish upon a star.
“I wish I was rich.”
Why do you want to be rich? How would being rich improve your life? What is it that you really want?
When making financial goals, people often forget that money is the means, not the end. It’s a tool to help you achieve what you want, not the end game.
If you can determine what you want, you’ll be more successful in achieving your financial goal.
Use the SMART Goal Framework
Once you determine what you want and why you want it, describe it using the SMART goal framework.
SMART goals offer a specific process of goal-setting that gives you the best chance of achieving them.
SMART goals are:
- Specific
- Measurable
- Achievable
- Realistic
- Time-based
We discussed each component of a SMART goal at length in our article on goal setting, so I’m not going to rehash that here. SMART goals apply to all life goals, including money goals.
Describing your financial goals using the SMART framework will give you the best chance of successfully achieving them.
Examples of SMART Financial Goals
Let’s look at an example of setting financial goals using the SMART method.
In this scenario, you want to buy a new car. What SMART financial goal can you set?
What do you think about:
“Save up enough money to buy a new car.”
NOPE.
Unfortunately, that goal doesn’t meet the benchmarks of a SMART goal. You don’t know how much money you need, what you can afford, or how long it will take. And because that crucial information is missing, we don’t know whether it’s realistic.
Let’s try again.
“I want to save fifty thousand dollars in six months to buy a brand-new sports car without credit.”
It’s better.
We have a specific number and type of car in mind, and we’ve established a timeframe.
But is it realistic and achievable?
Given your current financial situation, can you save $ $50,000 in six months? Some people can, but the majority can’t.
One more time.
“I will to save five thousand dollars and improve my credit score by 50 points in the next six months to buy a reliable car.”
This goal meets the benchmarks of a SMART financial goal for most people. It’s specific, measurable, achievable, realistic, and time-based.
What Financial Goals Should I Set?
Every person has different hopes, dreams, and reasons for setting financial goals. We also have unique financial circumstances, income levels, debts, and priorities.
Therefore, telling a broad audience to set specific money goals is impossible.
However, we will use the SMART framework to provide examples of financial goals. You’ll have to adapt them to fit your needs.
Free Financial Freedom Mind Map
If you aren’t sure what goals to set, grab our free financial freedom mind map and worksheet. We offer four pages of mind maps, brainstorming sessions, and ideas to help you identify and set financial goals.
Financial Goals for Everyone
Our examples include short-term and long-term financial goals, money goals that aren’t directly related to cold, hard cash, and personal goals related to money.
Short Term Financial Goals
Short-term financial goals refer to the money goals you can achieve in a relatively short time frame. Of course, each person’s situation will vary, but you should be able to reach most of these goals within 6 months to 3 years.
Debt Repayment
Credit cards are the bane of our existence. They’re great in emergencies, but they also seem like free money, and our overuse often leads to mountains of debt.
Paying them off is a top financial goal for many people.
To set a SMART goal for paying it off, determine how much debt you carry, decide how much extra money each month you can realistically put towards it, and then divide.
For example, you have $10,000 in debt and can repay $500 monthly. Divide 10000 by 500, and you’ll see it will take 20 months to pay it off. Of course, this simple calculation doesn’t include interest payments, so you must add an additional 20% or 4 months (Interest is variable; the 20% is an example, but it should get you in the right ballpark).
Here’s your SMART goal:
“I will pay off my $10,000 credit card by repaying $500 per month for the next 2 years, and I will not use my credit card during that time.”
The same applies to any debt you’d like to repay.
Improve Your Credit Score
A good credit score can improve your life. You can access cheaper loans and pay less interest throughout your life. It’s crucial if you ever want to finance a big purchase.
The credit reporting agencies look at many aspects of your financial life to determine your score. To improve your score, you must see what’s impacting it.
If you have too much debt, focus on paying it off, like above. If you have a poor credit history, focus your SMART goal on making on-time payments. If you have too many inquiries, vow to stop shopping for new credit for the next two years.
Build Your Emergency Fund
Many financial gurus claim you should have $1000 cash in a savings account to manage emergencies.
While that may have been a perfect target in the past, modern emergencies cost more. Aim to have at least $5000 in an emergency account to pay deductibles, buy a new washer, and manage any unexpected expenses.
If you’re starting from scratch, you only need to set aside $250 per month for the next 20 months to achieve that $5000 target. That’s your SMART goal.
Create a Budget
Money comes in, money goes out. Do you know what’s happening to it?
Creating a budget is one of the best things you can do to achieve your financial goals. It will help you understand exactly where your money is going.
To prioritize budgeting using the SMART goal timeframe, set aside a specific time each week/month to review your spending and build your budget.
Your goal may be something like, “Every Saturday from 8 a.m. to 10 a.m., I will review my bank statements and bills. Based on my financial priorities, I’ll create my budget for the following week and stick to it.”
Save Money For _____
All of us have big-picture wants. Perhaps you want to take an epic vacation, buy a new entertainment system, or plan for holiday shopping.
Define that want, and create a separate savings account dedicated to it. Label it “Dream Vacation” or “New Car” so you get a warm fuzzy feeling when you watch it grow.
To transform it into a SMART goal, you’ll need an idea of how much it will cost and when you’ll want to buy it. For example, if you’re saving for Christmas shopping in January, and last Christmas cost $3000, you have about 11 months to save $3000, meaning you must put away $275 per month to achieve your goal.
Long-Term Financial Goals
A lot of our financial goals take much longer than three years to achieve. They may seem a long way off, but due to the power of compound interest, the earlier you start, the easier they will be to achieve.
Build Generational Wealth
Generational wealth helps your children and grandchildren succeed. It may sound like a pipe dream, but there are many ways to give your kids a head start. Even investing as little as $1000 when they’re babies can have a massive impact on their lives as adults.
If you put $1000 in an investment account when they’re born and for every birthday, they’ll have nearly $45,000 when they’re 21. They could use that money to buy their first home, get married, travel the world for a year, start a business, or keep investing it for their future.
Building generational wealth looks different for every family. Decide what it looks like for yours, and use the SMART framework to make it an achievable goal.
College Savings for Kids
While generational wealth seems abstract, there’s one far more attainable way to give your kids a heads-up.
Save for their college education in a 529 College Savings Plan.
Your SMART goal could be to “save $150 per month in the 529 plan for Junior’s college fund.”
Junior will have nearly $60,000 when they’re 18, allowing them a lot of freedom in deciding which college to attend.
Achieve Financial Security
Financial security means not stressing about money. The broad definition offers versatility, so each individual can decide what that means to them.
Some might have a retirement savings benchmark that will make them feel secure, while others might need a hefty FU money account.
When you define what financial security means to you, you can set a SMART goal to achieve it.
Home Ownership
Homeownership defines the American Dream, so it’s a financial goal for a lot of people.
If you want to own a home in the future, consider the financial impacts today.
Your first goal towards homeownership should revolve around the downpayment.
According to Zillow, the average home price is slightly below $360,000. If you want a conventional loan, you’ll have to save up a hefty $72,000 for a downpayment.
Fortunately, other options help you buy a home with only 2.5%, or $9,000, but that’s still a big chunk of change.
You’ll also have to consider the hidden costs of buying a home, including closing costs, HOA fees, furnishing, and everything else. Add a few thousand dollars to your savings goal to account for these expenses.
But buying a home isn’t just about money. You will also need to improve your credit score.
As you can see, some of the broad “financial goals” are really a collection of smaller goals stacked on top of one another.
Retirement
Retirement seems so far away when you’re young that it’s pointless to worry about.
The years will go far faster than you realize.
Make saving for retirement a financial goal as early as possible. Contribute to your 401K with your first paycheck from your first job. Your SMART goal should be something like “Contribute X% of my paycheck to my retirement account.”
When you’re in your 30s and 40s, you’ll have a better idea of what you need for retirement. Crunch the numbers. Determine when you want to retire and how much money you will need in retirement. Set SMART goals that help you achieve your retirement dreams.
Financial Freedom
You don’t have to work until you reach full retirement age. Many of us strive for financial independence, meaning we can quit the rat race before age 65, using those years when we still have good health to pursue our passions.
Achieving financial freedom seems like a lofty goal, especially if you’re just starting out. However, it’s achievable for most people. You’ll have to do some planning and set specific milestones along the way, but if you do that, you will get there.
Financial Goals for Self-Improvement
Some of our money goals relate to our habits and ourselves rather than to our actual wallets.
Don’t ignore these crucial goals when getting your financial life in order.
Change Your Spending Habits
Most of us have poor spending habits. It takes a lot of time and effort to fix them.
To turn this idea into a SMART financial goal, start with tracking. “I will track all of my transactions in a spreadsheet for the next month.”
Once you see where your spending is out of whack with your priorities, you can set additional goals to fix it.
Understand Your Relationship with Money
How do you define money? Are you a saver or a spender? Is money a tool or a resource?
Understanding your relationship with money is vital to a healthy financial life, but it takes a lot of work and deep introspection.
You don’t have to go at it alone. If you struggle with poor money habits, you can hire a financial coach to help put you on the right track. You could also seek therapy to address deep-seated money insecurities you developed over time.
To make this a SMART goal, think about the actionable steps you can take to achieve it. For example, you can commit to five sessions with a financial therapist or to journaling about money for one hour per week.
Teach Your Children Good Financial Habits
Most of us learn our poor money habits from our parents. Change your family culture by modeling better behavior for your kids.
Get them involved by paying them for chores and helping them save for the things they want. Teach them to avoid instant gratification and give them age-appropriate financial lessons.
Financial Literacy
I was bad with money because I didn’t know any better. Can you relate?
Learning how compound interest, investments, and credit scores work can help you make better money decisions.
You can find nearly everything you need online for free. Pick a topic, and dedicate at least an hour per week to learning about it. When you feel comfortable with the knowledge, move on to something else. You’ll be a financial guru in no time!
Personal Goals Related to Money Goals
Many of our personal and life goals have financial components. Nearly everything we want to do involves money in some fashion.
Here are examples of personal goals that also lean toward financial goals.
Career Goals
Our jobs provide an income, so our career goals are deeply entwined with our financial goals. But they aren’t always about making more money.
Many people opt for careers they care about, sacrificing a higher paycheck for meaningful work. Others decide to change fields mid-career, restarting at the bottom of the income scale.
It’s crucial to understand how your career goals will impact your finances.
Moving
We all dream of escaping our place of birth. It speaks to the human experience of striking out on your own to pursue adventure.
But moving is costly, time-consuming, and sometimes harrowing.
If you dream of moving cross-country (or across the world), you must plan how you will pay for not only the moving but also your living expenses once you’re settled into your new life.
Creating a Family
It costs over $400,000 to raise a child in the United States. Are you prepared for that massive expense?
If raising a family is a top life goal, you must consider the financial impacts. To make it easier, start planning before Junior arrives.
Go Back to School
With college tuition skyrocketing, anyone thinking of going back to school must make it a financial goal.
The cost of tuition alone exceeds $10,000 per year at public universities, and that doesn’t include fees, books, or living expenses.
Start a Business
Entrepreneurship showcases the American spirit, but starting a business can be costly. Although the price tag varies based on the type of business you start, you must consider taxes, registration fees, and overhead.
General Lifestyle
Money impacts every aspect of our lives. Therefore, most of our lifestyle goals are also financial goals.
Develop Your Own Financial Goals
The examples here are just the start. Everyone has a unique vision for their life and finances, so develop your own financial goals specific to you.
Start with a brainstorming session. Grab your favorite journal and identify your needs, wants, and biggest priorities. Break them into short-term and long-term goals, define your immediate needs, and fantasize about your dream life.
Next, consider the obstacles you might encounter and consider ways to overcome them.
Your brainstorming session will help you identify what you really want and set realistic goals toward achieving it.
How Do I Achieve My Financial Goals?
Now that you know which financial goals to set, you must plan to achieve them.
Don’t worry – it’s not as difficult as it seems.
These steps will set you on the right course.
Get in the Right Mindset
Mindset is vital, but far too many people skip over it like it’s nonsense.
It’s not. Your thoughts influence your behaviors.
“Whether you think you can or think you can’t, you’re right” – Henry Ford
You must believe you can. You must believe you will. It’s time to change your thinking to ensure you truly want to achieve your financial goals.
Tools can help. I like to journal about my goals and dreams, use money mantras to get my subconscious on board and fantasize about what my life will be like once I accomplish everything.
Others create vision boards or collages where they scrapbook their vision for their financial goals. Still, others prefer to meditate and find that the physical action of deep breathing while focusing on their goals helps them achieve them.
There is no right or wrong way to get into the right mindset to achieve your goals. Try a few things and stick with what works best for you.
Create an Action Plan
Now that you have your mindset right, it’s time to make a plan.
A financial plan containing your current situation, long-term goals, and strategies for achieving them is vital to your financial goal action plan.
However, your action plan also needs to include short-term goals and specific tasks you must complete to achieve those goals.
Your goals are the “what and why,” but your action plan is the “how.”
Break the Big Goals Up
Big goals seem insurmountable, so break them into smaller goals.
Five thousand dollars in six months seems overwhelming. That’s over $800 each month, which is also rather intimidating.
However, it’s only about $200 per week.
You can easily start a side hustle to pocket $200 a week. Drive for Uber or Doordash on the weekends, walk dogs after work, or sign up for TaskRabbit to help folks with their household chores.
You might also be able to work an extra shift or two at your regular job to help bridge the gap.
If you aren’t interested in picking up more work, you can probably save close to $200 a week by eating out less, reducing your costs at the grocery store, or exploring the numerous other ways you can save money.
The point is, finding a way to either save or make $200 per week is far less daunting than thinking about the full $800 per month.
And if it’s not, you might realize that your goal of $5000 in six months isn’t realistic, and you will have to adjust your goal to something more attainable.
Use the Buddy System
Everyone in the fitness world uses an accountability buddy (accountabilibuddy!) to help them lose weight; why not take that idea over to the world of finance? The idea that discussing money is taboo is silly and should be abandoned anyway.
Your money accountabilibuddy should have similar financial goals to help you achieve yours.
You can work together to save money by enjoying nights in together or calling each other before making an impulse purchase. You and your buddy can help each other stay on track, and you can reach your goals together.
If you don’t have a buddy, consider hiring a financial coach to assist.
Keep Track of Your Progress
It’s easier to hold yourself accountable when you can see your progress.
Draw little jars and fill them in until you reach your target. Create a little tracker that slides along until it reaches the finish line. Record your progress in a journal, keeping a running checklist.
There’s no right or wrong way to track your progress. Develop a system that motivates you.
Implement an Award System
The big payoff is achieving the goal, but sometimes, that goal is so far off that it’s hard to stay motivated. It’s easier to keep at it with rewards.
Reward yourself for achieving your smaller weekly or monthly goals.
Once you reach your monthly savings goal, award yourself with a night out or a new book.
It doesn’t really matter what the reward is as long as you associate it with achieving your goal. Doing so will trick your brain into wanting to work harder to achieve the steps you laid out because it will crave the reward.
Get Help
You don’t have to do it alone. If gaining control of your financial life is overwhelming, seek help. A financial advisor can help you invest your money wisely. An accountant can help you budget. A financial coach can hold you accountable.
There’s no shame in seeking help if you need it.
Slay Your Goals!
Your financial goals are achievable. Start today, and by this time next year, you’ll be well on your way to accomplishing them.