Without financial goals, it can be very easy to let your spending priorities drift. Instead of spending money on things that matter to you most, you might find that a percentage of your income falls through the cracks of your budget. That’s why setting money goals is an important step in your financial journey.
Let’s take a closer look at what a money goal is and how setting these goals can keep your financial future on track.
What is a money goal?
The idea of setting a goal is likely not a new one. You’ve probably created goals for other areas of your life. For example, you may have set fitness or other personal goals in the past.
So what is different about a money goal? A money goal is set up to specifically help you reach your financial dreams. These goals should reflect your long-term and short-term priorities.
Why should you be setting money goals?
In all areas of your life, you’ll likely achieve more progress with a goal in mind. Otherwise, your habits can tend to drift towards the most comfortable path. With actions that aren’t intentional, you might find yourself floating aimlessly instead of making marked progress towards your dreams.
When it comes to money, intentional action is critical. Money goals help you stay on track. Without a goal, it is easy to fall into mindless spending. You may notice that you struggle to save for big expenses without specific money goals in mind.
With a clear vision of your money goals, you will be more likely to make swift progress towards achieving these goals.
What is a good financial goal?
Before you start to map out your money goals, it is important to understand what a good goal should entail. The most important component of a successful money goal is a connection to your lifestyle goals.
Most lifestyle goals require a certain amount of financial capital to attain. That’s where your money goals should come in. For example, if you want to travel for a year, that will require some upfront financial planning. Or if you want to save for a down payment on your first house hack, you’ll also need a guiding light to help you achieve that admirable dream.
Essentially, financial goals should be rooted in lifestyle goals. Think about what lifestyle changes you’d like to enjoy in the future. What will financial resources will you need to make those dreams a reality?
What is an example of a good financial goal?
A money goal should have a clear tie to your hopes and dreams. Everyone has different dreams for their life, so there is a wide range of ‘good’ money goals. There is no right or wrong goal for your financial future. The most important thing is that your money goal is rooted in what matters to you.
A few examples to consider include paying off your debt, building an emergency fund, funding travel, saving for a large purchase, and working towards financial independence.
How to set financial goals
Now that you have a better idea of what a money goal should be, let’s talk about how to set these goals for your own life.
Think about your dreams
Since all money goals should be tied to your lifestyle dreams, take some time to consider what truly matters to you. It can be tricky to figure out exactly what you want out of your life and money. But spending some time thinking through the possibilities.
Of course, you can adjust your goals in the future to reflect any major changes. But having an idea of where you want your money to take you is a good place to start. You might start with simply the peace of mind of breaking the paycheck to paycheck cycle or set your sights on long-term goals such as complete financial independence.
Determine realistic timelines
Once you have a good idea of your lifestyle dreams, think about the reality of tying these dreams into your financial goals. Since most money goals will take some time to achieve, it is important to be realistic in your expectations. If you set a goal with an unattainable timeline, then you risk running off track.
For example, let’s say you want the freedom of eliminating all debt from your life. You’d need to evaluate the size of your debts and weigh that against your income potential. Don’t set a goal of paying off all of your debt by next week if you have thousands in debt without an income stream to match.
As you determine what a realistic timeline is for your situation, it is okay to be optimistic. After all, you could always pick up a side hustle or negotiate for a higher salary. But keep your increased income expectations within a reasonable frame.
Make a plan
Once you have an idea of what is a realistic money goal for your situation, write down the goal. Beyond simply writing the end goal, map out a plan to make this a reality.
Be as specific as you can be in your plan. Instead of writing down a vague concept like ‘earn more income to pay down debt,’ write something like ‘earn more income through side hustles including freelancing, driving for Uber, and delivering groceries to pay down my credit card debt within the year.’ The second phrase gives you actionable steps to fall back on when you aren’t making as much progress as you’d like.
Stay on a budget
A budget can help you carefully allocate your income towards your goals. By sticking to a budget, you can curb unnecessary spending. With that, you’ll have more funds to funnel towards your money goals.
Reassess along the way
We all experience changes in our life. Whether your income changes or your plans for the future change, you should adjust your money goals along the way. As a good rule of thumb, assess your money goals on an annual basis to ensure you are on the right track.
The bottom line
Money goals can help you build a bright financial future. If you have big goals for your lifestyle, then you should also create goals for your money. With careful planning and a willingness to stick to a budget, you can stay on track towards the money goals that matter to you.
If you want to learn more about creating a strong financial foundation, then check out our Personal Finance 101 guide.