{"id":13788,"date":"2022-07-20T12:08:34","date_gmt":"2022-07-20T17:08:34","guid":{"rendered":"https:\/\/www.fitbux.com\/articles\/?p=13788"},"modified":"2024-11-14T16:42:54","modified_gmt":"2024-11-14T22:42:54","slug":"how-to-set-financial-goals","status":"publish","type":"post","link":"https:\/\/www.fitbux.com\/articles\/how-to-set-financial-goals\/","title":{"rendered":"How To Set Financial Goals"},"content":{"rendered":"

There are two big problems I see when people are planning their finances: They don\u2019t have financial goals or they have bad\/unattainable financial goals.\u00a0 This article details how to set financial goals the correct way so you can maximize your chances of success.<\/p>\n

How To Set Long-Term Financial Goals<\/h2>\n

When building a financial plan<\/a>, you should build multiple plans.\u00a0 Then you want to compare plans to see which one allows you to best reach long-term and short-term financial goals.<\/p>\n

I define long-term goals as a goal that will take more than one year to accomplish.\u00a0 Typically, these goals are completely paying off some debt or saving for retirement.<\/p>\n

Many financial “influencers” I\u2019ve seen actually tell people to ignore long-term financial goals such as retirement because it is so far away.\u00a0 I\u2019ve also seen \u201cfinancial experts\u201d say retirement is the most important because of the compounding effect on investments.<\/p>\n

I say neither is right!\u00a0 You might not want to ignore investing for retirement because there may be big benefits of investing now that aren\u2019t related to compounding.\u00a0 For example, getting a match on your 401k<\/a> or investing in a Roth IRA<\/a> for retirement income diversification.<\/p>\n

At a minimum, I suggest putting enough into your 401k to get your employer\u2019s match as well as putting at least $25 – $100 a month (depending on your income) into a Roth IRA.<\/p>\n

From there focus on your short-term goals.<\/p>\n

How To Set Short-Term Financial Goals<\/h2>\n

Short-term financial goals consists of goals you can achieve this year or may be part of a broader, long-term financial goal.<\/p>\n

Financial goals you can achieve this year are items such as saving for a wedding, saving for a down payment on a car or house, saving for a vacation, etc.<\/p>\n

The tricky part is that the broader end goal may not happen this year.\u00a0 For example, you might need to save $20,000 for a down payment on a house but can only save $500 a month.\u00a0 Therefore, you may set a short-term financial goal of saving $6,000 over the next year.<\/p>\n

I believe that hitting your short-term goals are the most important because it develops good behavior.<\/a>\u00a0 The faster you achieve your short-term financial goals, the more likely you are to continue pursuing your longer-term goals as well as build and implement a sound\u00a0 financial plan.\u00a0 FitBUX views setting short-term goals as being so important that our technology sets monthly goals and we update your FitBUX Score<\/a> daily!<\/p>\n

Know The Why<\/h2>\n

Before I go into setting specific financial goals, I want to discuss one of the biggest mistakes people make.<\/p>\n

When setting financial goals, many people simply state they want to spend less, invest more, etc. simply to have more money.<\/p>\n

However, when asked why it’s important to them to have (more) money, they often can’t articulate a clear answer.\u00a0 Unfortunately, if you don’t have a clear sense of why you’re doing “something”, you are very likely to give up half-way and never hit your goal.<\/p>\n

For example, when I was saving to buy a house, it wasn\u2019t because I couldn\u2019t wait to do yard work, clean toilets, vacuum a bigger house than the condo I lived in, etc.\u00a0 When I was growing up, my grandmother had a large backyard and I spent a lot of time outside. I loved it.<\/p>\n

I wanted my newborn daughter to have the same experience instead of having to grow up in a condo.\u00a0 Therefore, my goal had nothing to do with money and wanting a bigger house just to have one.\u00a0 It was focused on something I deemed more important than money. It was for my daughter.<\/p>\n

Your goals need to be developed the same way.<\/p>\n

How To Set Realistic Financial Goals<\/h2>\n

For every financial goal, both long-term and short-term, I highly recommend doing the following:<\/p>\n

Write Each Goal Down<\/h3>\n

One of the biggest reasons people don\u2019t accomplish their financial goals is they don\u2019t write them down.\u00a0 Writing down your goals does more than just allowing you to remember them. It makes you accountable for achieving them or not achieving them.<\/p>\n

Make Financial Goals Specific & Measurable<\/h3>\n

Saving for a down payment for a house is not a good enough goal.\u00a0 You have to put an actual dollar amount to it. I.e. In the long-term I need to save $15,000 for a house.\u00a0 In the short-term, I\u2019m going to save $2,500 every six months.<\/p>\n

The more granular and the more you tie in the \u2018why\u2019 the better.\u00a0 For example, I\u2019m saving $3,000 for my family vacation in 6 months.\u00a0 The trip will cost $2,500 for food, hotels, travel, etc. However, I want to save an extra $500 so my daughter can do xyz while we are there.<\/p>\n

Set A Deadline<\/h3>\n

You don\u2019t want to be saving for a \u201cdream\u201d vacation and then, 20 years later still be telling yourself you are saving for a dream vacation. \u00a0Make sure you have a deadline to achieve your financial goals. Of course, you will want to make sure your goals are achievable.<\/p>\n

For example, I hear all the time from folks fresh out of school: \u201cI want to pay off my $100,000 in student loans in a year and I make $50,000 a year in total income.\u201d\u00a0 Sorry, the math does not add up. Be realistic with yourself.<\/p>\n

Setting Financial Goals For Key Financial Areas Of Your Life<\/h2>\n

There are multiple steps to building a holistic financial plan<\/a> which takes into account multiple aspects of your life.\u00a0 Four key items to your plan are\u00a0 income, day-to-day expenses, savings\/investments, and debt.<\/p>\n

One huge mistake is that people don\u2019t set financial goals for each one of those categories and only focus on some of them.\u00a0 I detail below how to set financial goals for each category.<\/p>\n

Income Goals<\/h3>\n

Income goals are the most overlooked financial goal.\u00a0 However, they are the most important in my opinion because income can grow infinitely.\u00a0 Income goals can take a number of different formats.<\/p>\n

For example, you can have an explicit performance-based goal that will lead to an increase in income if your income is (partly) based on commission and associated triggers.<\/p>\n

One huge area that is overlooked but extremely important for young professionals is to set income goals by increasing your human capital<\/a>.\u00a0 This may be doing something such as learning a new skill that will increase your potential income in the future.<\/p>\n

Day-To-Day Expense Goals<\/h3>\n

This is the area most people spend time on when it comes to budgeting and setting financial goals. Truth be told, I believe that it is the least important.\u00a0 Income can grow infinitely, cutting expenses is finite, i.e. you can only cut expenses so much.<\/p>\n

In short: look at what percentage of your total income is going where, cut the biggest day-to-day expenses as much as you can, and move on.<\/p>\n

Savings\/Investment and Debt Goals<\/h3>\n

This can be broken down into three parts:<\/p>\n