Financial goals are the targets that you aim for when managing your money. It can involve saving, spending, earning, or even investing your money in different financial products. Financial goals are the measuring sticks that apply to any area of your money management skills that you’re looking to improve.
Setting financial goals can help you shape and improve your future by influencing the steps that you take today. With a clear picture of what you’re aiming for, working towards your target is easy which means that your goals should be measurable, specific, and time-oriented
Creating a list of financial goals is important in doing your budget. You might think about what you want to achieve but you need to spend, save and invest accordingly. Think a lot before making a purchase or if you plan to pay your debts.
Goal setting can break down a larger objective into smaller steps that allows you to feel an increasing sense of accomplishment as you reach the top. That positive reinforcement can put some wind in your sails and keep you pushing forward, despite having tough times.
Like other expenses, financial goals should be included in your budget and take concrete measures toward reaching them while leaving some room for other matters. Plan out effectively to know how much time it will take to reach each goal and the money you need to contribute within that period.
Identifying goals and creating a realistic plan allows you to track your progress and motivates you to keep going. Even if you fall short, you might develop some healthy money habits along the way.
Managing finances for short-term, medium-term, and long-term goals
There are three major types of financial goals: short-term, mid-term and long-term goals.
Short-term financial goals are smaller financial targets that require your immediate attention. Usually, these goals can be reached within a year. If you acquired a credit card debt your priority should be paying it off so that you can avoid late fees and various additional charges.
Typically, midterm goals take about five years to achieve. It’s a little more expensive than an everyday goal, and achievable with discipline and hardwork. If you’re aiming to buy a house, you may want to save a sizeable amount to pay for the down payment, which is about 20 percent of the contract price to avoid paying mortgage insurance. Another mid-term goal could be saving enough money to buy your next car in cash. These goals may not seem like it’s just around the corner, but with the right saving strategy, you will be a bit closer to your goals.
Long-term financial goals take more than five years to achieve and the classic long-term financial goal is retirement.
One of the common financial goals is having an emergency fund. Life is unpredictable, and it’s important to be prepared. Saving for emergencies is one of the only goals that is a necessity. It should be the first one you should set, regardless of the situation.
It’s up to you to decide what qualifies as an emergency. There are a lot of different situations that can fall into this category, including hospital expenses, sudden loss of job, accidents, broken materials, car repairs, electric appliances and house renovation.
When something unexpected occurs, emergency funds can be used during financial distress.
Paying off debts is one of the most common financial goals. No one feels comfortable knowing that they owe large sums of money. You can make a monthly payment, and the best way to make real progress is to stop borrowing. Incurring debts will only push you away from achieving your goals.
Saving for retirement is a goal you may be working towards your entire life. It is the perfect example of a long-term investment. Buying a home is a common long-term financial goal. Whether you’re saving for a down payment or working to pay off a mortgage. Homeownership is one of the largest financial targets to aim for. Paying for a sizeable down payment is the best way to get a reasonable home loan.
Having a monthly car payment is not effective and you may find trouble managing other expenses. A great example of a mid-term goal is paying off a car loan. Paying the balance should only take a few years and it could be easily considered as a mid-term goal.
Conclusion
Think about what’s important to you as you begin to set your goals. It’s completely normal to have several goals and to change them over time.