Financial goals are targets you set yourself to make sure you’re making the most your money. They can include everything from paying off debt to increasing your savings to investing for your retirement.
If you’re hoping to go on a vacation or make a large purchase without going into debt, it makes sense to set financial goals to do so.
Why timeframes are important when setting goals
There are key differences between a goal and a wish. A goal is actionable. It’s also measurable, specific and time-oriented. A wish, on the other hand, is a very general statement with no specific deadline. “I want a new TV” is a wish, while “I need to save £500 for a TV” is a goal.
Financial goals should be set as short-, mid- or long-term goals, depending on how difficult they might be to achieve.
Short-term financial goals
Generally, goals that can be achieved within a year can be considered short-term. This could be different for different people depending on their income, debts and other financial obligations.
For example, for some people saving for a family holiday could be a short-term goal. But if your goal is to go to Africa on an expensive safari, you might need more than a year to save for it.
Examples of short-term financial goals include establishing a budget, creating an emergency fund, or coming up with a plan to pay off your credit card debt. Small debts can maybe be repaid within a year. Larger debts should probably be moved to the next level.
Mid-term financial goals
Mid-term goals can take anywhere between two and five years to achieve. Saving for a down payment for a home, paying off your credit cards or saving enough money to pay for your next car in cash are all good examples that fit here.
Long-term financial goals
Anything that would take more than five years (even when working hard at it) should be considered a long-term goal. Saving for retirement or paying off your mortgage are examples of goals that you have to keep working at for years.
Why are financial goals so important?
Having financial goals can help you make better money decisions. For example, if your goal is to pay off a credit card in six months, it might be easier to cut off extra expenses like meals out and impulse buys. Goals help you develop healthy money habits and provide motivation, sometimes without you even realising it.
Plus, according to The Money Advice Service, people who set saving goals save faster than those who don’t.
How to create financial goals that lead to success
The key to setting financial goals that work starts with figuring out what matters to you. If you want financial peace, then a short-term strategy to save and pay off debt is essential. If you want to own your own house sometime in the near future, then you need a mid-term strategy.
But no matter what your goals are, making them realistic is key. You need to understand where you are right now when it comes to money. If you’re earning £34,000 a year, setting a goal of saving for a big house down payment in a single year may not be realistic. You need to look at your income, your expenses, and what you can adjust to make your goals possible.
After that, make sure you monitor your progress. Sit down to re-evaluate your goals every six months and adjust them if necessary, depending on how your circumstances and your goals change.
