How to Set Financial Goals (Definition, Examples & Tips)
We all have goals and aspirations we want to achieve. If we are honest, we have set financial goals and failed to meet them.
Setting up financial goals is easy, take out your pen and notebook, and start jotting your money thoughts. Spend a few hours so you can trick yourself with the lie that you are finally going to achieve your set goals.
The exercise you just did is wishful thinking. If you struggle with setting up your financial goals and achieving them, you are in the right place.
In this detailed guide, we’ll cover how to set your financial goals the right way.
Let’s get started.
What are Financial Goals? A Short Definition
Financial goals refer to the objectives or milestones you hope to achieve over a specific timeframe. The common forms of financial goals include savings, spending limits, and investments.
Your financial goals are influenced by many external factors, but none as strong as your life cycle. The stage of life you are in plays a huge role in determining your financial goals.
For example, at the high school level, our financial goal will be to purchase a new pair of sneakers or buy a game console.
Once we cross over to the college level, our financial goal will shift towards buying a car or renting our apartment.
In adulthood, our financial goals will contain more long-term assignments such as owning a home, paying our children’s tuition fees, and saving for retirement.
Financial goals do not always have to be positive or tied to purchases. It can be the simple state of attaining debt-free status and living a more minimalist lifestyle.
Many people confuse financial goals and the process to mean the same time. Financial goals are the results of what you want to achieve, while the financial process is the steps taken to reach the end goal.
Why Financial Goals Are Important
The importance of financial goals cannot be overemphasized. A well-structured financial goal can transform your financial fortunes.
Here are the reasons why setting up financial goals is important.
1. Realistic Planning
When you set a financial goal, the next step is to draw out a realistic plan to achieve that goal. For example, once you set a financial goal to make $100,000 in 2021, the next step is to draw up realistic plans to reach that goal.
In this case, realistic planning involves breaking down the $100,000 into 12 parts to represent all the months in the year. You have to earn $8,333 monthly to achieve your goal.
2. Helps us Focus on What is Important
Financial goals force us to prioritize what is important and abandon distractions. For instance, if your financial goal is to save $20,000 a year from your earnings. Your goal will force you to cut down on unnecessary expenses to meet your savings target.
Financial goals coupled with self-discipline holds you accountable for your decisions. The presence of these goals will make you do a rethink and restrategize when you are falling short of your targets.
If you achieve your financial goals, you can always add new items to it. For intangible wealth goals like staying debt-free, financial goals keep you on track.
4. Tracks Progress
Tracking your progress is a key to achieving your goals. When you set your financial goals, use smaller yardsticks to measure your progress.
Your financial goals push you through these yardsticks and hint you when you miss a step. Watching the successful progress of your goals serves as a great motivator to achieve them.
List of Financial Goals Examples
Financial goals come in different shapes and forms. There are tons of examples of financial goals. Here are some of the common examples of financial goals among people.
1. Setting a Budget and Adhering Strictly to It
The first example of financial goals is setting up a budget and living by it. Creating a budget is an excellent way to cut down on expenses and debts.
A budget is the estimation of your total income and expenditure over a specific period. It is one of the smartest inventions of man that helps achieve his financial goals.
Before you set up a financial plan, you need to create a budget to reveal your financial limits. Budgeting is key to solving most of your financial struggles.
If your financial goal is to spend not more than $1,000, a budget can keep you on track.
2. Paying off Your Credit Card Debt
Another popular financial goal among people is to pay off debts. The credit card has its advantages, one of them is that it allows you to spend beyond what we have. But if you are careless, it can leave you in a sea of debts.
Americans owe over $1 trillion in credit card debt.
Failure to pay your credit card debts on time increases the interest charged, and makes it harder to meet up to your obligation. It eats up your cash flow and hampers your financial health.
Paying off your credit card debt is an example of a financial goal. After setting the goal, the next step is to look for ways to eliminate the debt. You can attempt credit consolidation with a nonprofit credit agency around you.
3. Setting up Emergency Funds
Opening an emergency fund is a financial goal that should be on everybody's goals sheet.
Financial experts suggest having a minimum of three months worth of liquidity in your emergency account. If you can do six months or higher, the better your capacity to handle emergencies.
The global job economy is fragile, one moment you are employed and the next moment, your services are no longer needed.
Most Americans do not have any savings, with over 69% of Americans having less than $1,000 in savings.
Setting aside money to put in your emergency fund is an investment that reaps a bountiful harvest. Your emergency funds can solve any unforeseen problems such as car repairs, medical bills, mortgages, and others.
4. Retirement Saving
Saving up for retirement is one of the most common financial goals of the working class. Retirement saving is an essential financial goal for the future. You need to learn the art of delayed gratification to carry out this goal.
According to Statista, 15% of Americans do not have any retirement savings.
The best time to save for retirement is during your active working years, when income is abundant. Saving for retirement can be hard. It is a long term goal and many short term goals are competing for your attention.
If you have difficulties with it, switch your mindset and think of it as your security for your inactive working years. Every month allocate a tiny portion of your earnings to grow your retirement portfolio.
Some of the common accounts used for retirement savings include 401 (k) plan, traditional IRA, Roth IRA, regular savings account, taxable investment account, an annuity or life insurance policy.
5. Develop Your Skills
There is a strong correlation between your skill set and what you want to earn. Improving one’s skills to improve income capacity is a popular financial goal worldwide. That's why people attend schools, go for seminars, and training, and write professional exams.
Developing your skill does not necessarily mean getting a formal education. It also covers informal education such as learning from a mentor, reading business books, taking online courses, attending conferences, webinars, and networking.
A small step such as improving your skills can boost your income.
6. Paying Off Your Student Loan Debts
A college education is expensive in many countries of the world. Even in developed countries where students get access to student loans, it can take them decades to finish paying off their loans.
According to Times Money, more than 40 million Americans owe student loan debts. In the US, student loans grow faster than the nation’s economy. EducationData estimates the total student loan debts in the US at a whopping $1.71 trillion.
Paying off your student loans is a good example of a financial goal. There are various options available for you to refinance your student loan debt at a better interest rate. America offers debt forgiveness but it only happens in extreme cases.
Before you use any available private lenders to refinance your loans, explore the merits and demerits. Refinancing through private lenders can cause you to lose some benefits such as income-based repayment and deferment.
7. Starting a Business
Starting up your business is a good example of a financial goal that brings ultimate fulfillment to you. Nothing about setting up a business is easy. There has to be serious long-term planning if the business is going to be successful.
According to Oberlo’s gatherings, these are the best small business statistics in the US every aspiring business owner should know.
- Small businesses create 1.5 million jobs annually
- They are responsible for 64 percent of new jobs created
- 90% of businesses are small to medium-sized businesses
- 50% of new businesses fail in their first year
- More than 95% of new businesses do not survive the five–year mark
- 42% of small businesses fail because of no or low market demand
You need to have a business plan, find seed money, employ labor and define your budget and expectations to hit the ground running.
Examples of Financial Goals by Time Frame
A key contributor to the success of your financial goals is to make it time-bound. Goals without a time frame in place are mere wishes. Adding an expected duration to your goal makes it appear more urgent and makes you more accountable for its prosperity.
Financial goals by time frame naturally divide themselves into three: short-term, mid-term, and long-term financial goals.
Let’s look at some examples of financial goals based on the time frame you plan to accomplish them.
Short-term Financial Goals
Short-term financial goals are those easy financial targets that you expect to complete within two years. Funding for your short-term financial goals is best put in a savings account that you can easily access.
Short-term financial goals refer to those goals that have an immediate impact on our financial health. They often serve as building blocks for more long-term goals.
Examples of short-term financial goals include:
- Creating a monthly budget
- Saving for the festive season
- Renovating the home or office space
- Creating emergency funds
- Purchasing groceries and other immediate goods
Mid-term Financial Goals
They refer to those targets that take a bit of time to achieve but not too long a duration to be classified as long-term goals. Money for mid-term financial goals is best kept in a Certificate of Deposits account.
Mid-term financial goals involve more planning and more funds than short-term goals. Examples of mid-term goals include:
- Saving to pay for a home
- Full-payment for a car
- Starting a business
Long-term Financial Goals (5 years and above)
These financial goals require long-term planning, determination, and more resources to achieve. Money for long-term financial goals is best put in long-term savings or investment accounts.
Examples of long-term financial goals include:
- Investing for retirement
- Creating multiple streams of income
- Paying off your mortgage and credit card debts
How to Set Financial Goals
Setting up a financial goal for success requires more than just writing it down. It involves the whole thought process and actionable steps to get you to where you want to reach.
If you do not put a plan to your financial goals, you will always miss the mark.
Here is how to set financial goals in the right way that gets results.
1. Take Time Out to Think
Spend some time thinking about the financial goals you want to achieve. Why do you want to achieve it? What will it do for you? What is your motivation?
Figure out the financial achievement that matters to you. Ensure that your financial goals are what is relevant and important to you.
2. Write Them Down
When you write your financial goals down, you make yourself more accountable for their success. The human mind is fragile and within a blink of an eye, you can forget your financial goals.
Save yourself the frustrations of losing your goals, and write them down on paper. Write your financial goals in several papers, and stick them in areas where you can easily see them.
Save it on the cloud, add it to your online and offline calendar, and stick it to your car, your room wall, and bathroom mirror.
3. Make Them Specific and Measurable
Create clear financial goals with clear action. Eliminate vague terms such as ‘I want to make money online.’ Instead, say ‘I want to make $100,000 this year.’
Break your goals down into smaller bits to make them measurable. ‘I want to make $10,000 per month in 2021.’
4. Set A Deadline
Goals that are time-bound have higher success rates than those that are not. Saying you will achieve your goals someday does not mean anything. Set a deadline and stick to it.
Tips & Resources: How to Achieve Your Financial Goals
So far, we’ve covered the definition of financial goals, why they are important, examples of financial goals, and how to set them up. Now, let’s find out the best tips and resources for achieving your financial goals in 2021.
1. Develop A Goal Chart
Setting up a financial goal chart is a simple but effective method of achieving your financial goal. A goal chart consists of four steps:
#1 Write Down Your Financial Goal
Narrow your financial goal to one per goal chart. If you put in more than one, the goal chart becomes too complex and less effective.
Ensure that your personal financial goal meets the SMART standard – Specific, Measurable, Attainable, Relevant, and Time-bound.
#2 Choose The Time Frame of The Goal
Pick a time frame category for your goal – short-term, mid-term, or long-term. Short-term goals are those that take less than two years to achieve. Mid-term goals have a time frame of two to five years, and long-term goals take more than five years.
#3 Set A Budget
Take a deep look at your financial goal, make some research, and set a budget for it. Break down the set budget into smaller amounts. For example, if your budget for buying a car is $60,000, you can break it down to saving $3,000 monthly for 20 months.
#4 Have A Plan
How do you plan to achieve your financial goal? Brainstorm and research the easiest ways to achieve it. Some possible solutions including savings and cutting costs.
2. Focus on Your Work Schedule, and Not The Deadline
Every SMART financial goal must have a process and a deadline. SMART here is an acronym for Specific, Measurable, Attainable, Relevant, and Time-bound.
Focusing on the deadline can make the wealth goal appear far away, and make you start indulging in procrastination. Before you know it, you are behind schedule and it may be too late to meet up with your financial goals.
However, if you focus on the work schedule needed to accomplish the goal, you are more likely to accomplish it. Concentrating on the work schedule will help you take consistent actions at the right time.
3. Focus on Your Actions and Not Your Performance
Your actions are the consistent steps you take to ensure that you accomplish your financial goals. Performance is more about the aesthetics of your action.
The actions you take, although imperfect, take you closer to achieving your goals. Avoid worrying about your performance while implementing your financial goals, focus more on taking consistent actions.
Taking a performance-driven approach to handling your financial goals sets you up for failure. Drop the perfection tendency and focus on consistent steps that will move you towards perfection.
4. Set Incremental Goals
Setting incremental goals means grouping your goals into categories based on difficulty. It involves working on the easiest ones before moving to more tasking goals.
After you accomplish an easy financial goal, you take another and work towards accomplishing it. Taking your goals in bits helps you grow your confidence and melts mental barriers.
For example, instead of just setting a goal to make $10 million in a year by 2030, you set other smaller goals. They could make $10,000 in a year by 2022, make $50,000 by 2024, $100,000 by 2025, and so on.
Each time you achieve a smaller milestone, you embolden yourself to aim for more. Setting incremental goals serves as a motivation for achieving more difficult financial targets.
5. Create Accountability
Financial goals require self-discipline, focus, and hard work to achieve. If you do not have the discipline to hold yourself accountable, look for trustworthy people to act in that capacity.
Talk to the person about your goals, especially someone who can check on your progress. It could be a peer who shares the same financial goals with, coach, mentor, friends, or family members.
6. Use A Financial Goal and Budgeting Software
There is numerous software that makes it easier for you to set and track your financial goals. Using this software for your financial goals makes it easier to automate the process.
Here are some of the best financial goal and budgeting software.
Best Financial Goal Software for Budgeting
Mint is budgeting and expense tracking software that analyzes your spending habits and suggests areas you need to improve.
If your financial goal is to cut back your expenses, pay credit card and other bills on time, or have a positive credit score, Mint is the app for you. Never miss a due date for debt repayments with the Mint alert feature.
Best Financial Software for Building A Financial Habit
YNAB or You Need a Budget is a financial goal tracking software that helps you better manage your budget.
The finance platform is the best platform for beginners, who want to improve their financial literacy. There are lots of tutorials and other resources that educate users on difficult financial topics.
You can link your bank account to the software for better management of your income and expenditure. YNAB helps you stay within the limits set on your budget.
3. Goal Buddy
Best for Financial Goal Setting
Goal Buddy is a general goal-setting platform that you can use to set your financial goals and track your progress.
The goal-setting platform also covers financial goals. If you are new to goal-setting, Goal Buddy takes you through its process to help you create SMART goals.
In-Depth Financial Goal and Budgeting Tool for Goal Planning
Lifetick is one of the best goal setting and tracking tools with in-depth features. The software ensures your goals are SMART and guides users who are confused about what to do. Lifetick gives your goals the highest chance of success from an analytic point.
Best Financial Tracking Tool for Small Businesses
QuickBooks is one of the best accounting software for small businesses. The software helps businesses to manage their income, expenses, and taxes. Check out other QuickBooks alternatives if you need more accounting features.
Quick Financial Goals Checklist
Ready to improve your financial journey? This financial goals checklist will guide you to build your list, even if you are self-employed. We split the checklist into two: financial goals by 30 and financial goals for a business.
Financial Goals by 30
- Start an IRA
- Set up an emergency fund
- Pay off all your debts including student loans
- Set up a retirement fund
- Plan for early retirement
- Increase your salary or income
- Have multiple income streams
- Get a life insurance plan
- Pay off your mortgage debts
- Establish a system for tracking your income and expenses
- Have a diversified investment portfolio
- Establish a strong credit score
- Develop a healthy saving habit
- Cut your expenses
- Read top financial books
- Invest in a financial education
- Saving for vacation
- Live below your means
- End any addiction that eats into your finances
Financial Goals for A Business
- Create a long-term plan for your business spanning decades
- Create a budget for the financial year
- Keep business spendings within budget limits
- Keep overhead costs low
- Increase revenue and profit margin
- Create a business emergency fund
- Keep tax reports up-to-date
- Automate the business taxes and other accounting variables
- Hire professional financial advisers
- Manage business debts properly
Next Step: Plan Your Money Goals and Take Action
Becoming financially-independent is a reality. There are people around the world who take charge of their finances, set financial goals, achieve them, and live their dreams.
Setting wealth goals will help you focus on what is important, keep your plans realistic, and hold you accountable.
Knowing how to set your financial goals is just one half of the wealth equation. Planning alone cannot bring the financial results you want to achieve. You need to back it up by taking the appropriate actions.
Keep your wealth goals within the SMART framework – Smart, Measurable, Attainable, Relevant, and Time-bound. Combine it with a strong work ethic and commitment, and watch your goals met in rapid or due time.