One of the first steps to financial planning is to set financial goals. Goals are financial targets that you would like to achieve sometime in the future. You can still improve your finances by saving money and investing carefully without any specific targets but it is a good idea to have a least some general goals.
Here are some examples of goals with different time frames:
Short term goals
- Pay off a small debt, like a personal loan, within 8 months.
- Increase your retirement contribution by $100 per month.
- Reduce your cable bill by $150 per month.
Medium term goal examples
- Save up a $5,000 down payment for a car.
- Pay off your $30,000 student loan.
Long term goal examples
- Pay off all debt including mortgage.
- Save and invest enough money to retire at a desired age.
Short and medium term financial goals tend to be fairly straight forward (which doesn’t mean they are easy) and won’t be discussed on this blog very often. We will however revisit long term goals epecially relating to retirement since that is a big part of financial planning.
Financial goals have to be fairly flexible – if you are just starting the process of planning your finances then you will probably write some goals down, then do some analysis on your finances and see if those goals still make sense. Usually your goals will have to be rewritten several times in order to get them to match reality.
The priorities of your goals will depend on your financial situation. Someone who spends more than they earn probably shouldn’t worry about planning for retirement until they can get their budget under control. On the other hand, someone who is a good saver might be in a position to think about long term goals with some confidence that they can achieve them.