Learning how to set financial goals is an important element of financial literacy and well being. The best goals are ones that are practical and aspirational. It can be challenging to walk that line, but doing so will help you with financial planning and meeting your financial goals.
Leaders Credit Union members sometimes ask us for help with financial goal-setting and we’re happy to provide guidance where we can. Whatever your aspirations are, you can use this guide for help in setting financial goals and achieving financial success.
The financial goals you set should always be realistic. The best way to be sure they are is to understand and set SMART goals. A SMART goal is one that is all of the following things:
An example of a goal that isn’t SMART would be a goal to increase your savings. The lack of specificity and other details make it too general to be an effective goal.
By contrast, a specific and SMART goal would be something like this:
I will transfer 10% of my take-home pay into a high-yield savings account every pay period, with the goal to have a six-month emergency fund by December 1, 2024.
This goal is specific because it mentions exactly how much money you’ll save each pay period and what the goal is. It’s measurable because you’ll know whether you’re saving enough, and you can make it achievable by setting a percentage goal that works with your budget. It’s relevant because it’s a good idea for everybody to have an emergency fund and time-bound because you’ve set an end date to reach your goal.
The process of setting financial goals is the same regardless of what you want to achieve. You might have a short-term goal of creating a monthly household budget and the process for making that goal SMART is the same as it would be if you had a long-term goal such as accumulating enough retirement savings that you can retire early and travel the world.
The best way to set a SMART financial goal is to begin with a general objective and then work your way toward identifying the specifics. For this example, let’s consider a goal to pay off your credit card debt and thus improve your credit score. Here are the steps you can follow—and for this example, we’ll assume that you already have a budget and know how much money you can pay toward your debt each month:
We’d be remiss if we didn’t mention that goals may not always remain the same. If your financial circumstances change—if you get a raise or promotion or conversely, if you experience a drop in income—then you can and should revisit your goals to make sure that they’re still realistic.
When you’re ready to set financial goals, we suggest setting a combination of short-term, medium-term, and long-term goals. Here are the timeframes to think about when setting goals:
In some circumstances, a short-term goal might be a component of a long-term goal. An example would be if you had a long-term goal of retiring early and set a short-term goal to open an IRA to supplement your retirement savings.
Here are some examples of short-term financial goals to inspire you to help you with personal finance:
You would need to add some detail to these depending on your cash flow and current financial circumstances.
A medium-term financial goal requires more time and more money to achieve than a short-term financial goal. Here are some examples of medium-term financial goals:
You can see how these goals might be broken down. You might need to create a budget to determine how much money you can put toward your student loans or create a debt repayment plan to improve your credit score.
Long-term financial goals may take years or even decades to complete. Here are some examples of long-term goals you might want to set:
Your long term goals should be ambitious but still achievable. It’s important to identify the various elements of each long-term goal and how you can best cross each element off your list with the overall aim of meeting your long-term goals.
Achieving your financial goals will be challenging because life has a way of handing us surprises that can derail us if we’re not careful. Here are some pointers to help you stay on track and reach your financial goals even when you may feel discouraged:
If you have an array of financial goals, you may want to consider working with a financial advisor to work out the details and be sure that you reach your goals.
Setting financial goals is an essential element of financial literacy and well being. You can use this guide to identify your most important financial priorities and set SMART short, medium, and long-term goals.
Do you need guidance with setting and keeping financial goals? Access our free Smart Budgeting Tool Kit and choose the budgeting and money management strategies that work best for your needs.