Many times I talk with people who are either experiencing financial hardship or are struggling to make significant progress. There are usually two things that most of these people have in common:
First, they usually don’t have a budget, or if they do, they aren’t carefully evaluating their expenses and adhering to their budget. Second, they have not taken time to set financial goals based on what they want to do in life.
Setting goals should be the first thing that you do when trying to take control your finances. There is no point in setting up a budget if you have not established your financial objectives. Here are three ways to examine your current situations as well as your desires in order to set goals.
Once you site down and review your financial situation, you will probably have a long list of things that need to be started, fixed, arranged, etc. Some of those items can be taken care of immediately – only needing a phone call, or a few minutes to compare prices/rates, and others will take time to handle.
Gather everything that can be handled in less than a day and put them on a list. Here are several examples:
- Lower Your Monthly Bills – Compare cell phone plans, insurance rates, energy providers, etc., in order to get the best rate
- Add Beneficiaries – Make sure you have named and updated the beneficiaries on your investment accounts and insurance policies
- Pay Off Any Small, Overlooked Obligations – If you let anything slip through the cracks (such as subscription renewals, important phone calls, or changing the passwords to your online accounts), set aside a day to take care of it – yes this even includes parking/traffic tickets ;-)
There are probably a lot of other things that will come up during your review, but hopefully this list will help you to consider a few things that aren’t that common. Think about those things that you’ve been putting off – such as calling your doctor and insurance company to straighten out a medical bill.
Whatever you see that isn’t perfect, but can be handled in a day, put it on this list and take a couple of days off of work and tackle them!
These are the goals that you should be able to accomplish anywhere between 1 week and 3 years.
- Get Out of Debt – For some people, this will be a long-term goal. According to the bible, debt is bondage. You can ask people who are stressing over being “underwater” on their home and car loans, or receiving calls from debt collectors. This should be one of the top priorities no matter what your situation is.
- Establish an Emergency Fund – Any stable household should have an emergency plan. Most of the time, that plan should include an emergency fund. You should have between 6 to 12 months (depending on other factors) of living expenses saved up in case something unexpected happens.
- Create a Will – This is something that most people agree is very important, but few make time to do it. Begin to research the components and structure of a will – maybe even consulting software – and then consult an attorney for final guidance. Don’t put it off any longer, make it a short-term goal and get it done!
- Buy a Life Insurance Policy – Even if you have a policy through your employer, it still pays to put this on the list. After evaluating your needs, you may realize that you do not have adequate coverage. Since life is unpredictable, you need to make this a priority. I was tempted to make this an immediate need, but it may take a little time to perform the necessary research.
- Fund a Retirement Account – Even if you are in debt, this is a category for which you should begin to consider. Look at the current 401k contribution limits and IRA contribution limits and see what you can put aside each month. If your employer offers a match, be sure to contribute enough to get this free money!
Some of the items that you will include on this list will be things you can fix in a few days or maybe a week. They just require research and a talk with your spouse (if you’re married). However, some of the your short-term goals will take more time to plan and work into your budget. Be patient, but be disciplined!
Anything that will most likely take you longer than 3 years should go into this category.
- Education/Training – If you want to obtain a degree or certification, you will need to plan for it. It will take both time and money, and the right opportunity. You need to start saving and organizing your life to be able to accomplish this!
- Save For Large Purchases – This is probably the most common long-term goal that I come across. Most people want to save money to buy a house or to pay for their children’s college education. Even paying for a car with cash or being able to take a dream vacation can fit on this list.
These goals are subject to change, and they also depend on your ability to meet your immediate and short-term goals.
What’s The Point Of Financial Goals?
All of this seems nice, but what’s the point of making these goals? What makes them different than the various dreams and ambitions that many people never reach?
The main financial benefit from establishing these goals is that they will help to guide your budget and overall financial management. How can you set up a budget if you don’t have any goals? You need to know where to direct your time, efforts, research and education, and money, and having goals will help you to do that.
- Do you take a day or two off from work to devote solely to immediate goals?
- How often do you review your financial situation to ensure that it lines up with your goals?
Jenn @ Frugal Upstate says
You are right-goals are so important. But what if your partner is not interested in setting goals? We are frugal by nature (hence the blog!) and we pay for the big things-retirement, mortgage, bills-up front. I know that there is a lot being frittered away in little ways, but without family goals it’s hard to get hubs to knuckle down & pay attention to all the little money wastes.
We are big on goals as well. We didn’t save anything until we started setting goals. We have short-, medium- and long term goals. Then we split them up as tasks for 1 year and 1 month, to check the progress. It has been working great.
Khaleef Crumbley says
I think this is the best way to go. We were the same way – not really saving because we didn’t have concrete goals. In fact, we need to sit down and review our goals again!
Derrik Hubbard, CFP says
That is great insight into the tie between a budget and goals.
I think that there are many who see a budget/spending plan as an academic exercise that only nerds enjoy doing. In reality it is the budget that ALLOWS you to accomplish the long term goals by building margin in for them.
Those that don’t follow a spending plan rarely have the money “left” to accomplish what matters most in the long term.
Derrik Hubbard, CFP
Khaleef Crumbley says
You are right about that! A budget is just a tool, it is not the goal.
Frugal Living says
I always try to set short term and long term financial goals, but they never seem to pain out over a month
Khaleef Crumbley says
What usually happens? Are you setting goals that you cannot reach, or are you constantly beating your goals with time to spare?