To reach your goals, you have to figure out where you want to go and create a plan to get there. When it comes to planning for your financial future, being specific about your goals can dramatically increase your likelihood of reaching them.
Why It’s Important to Be Specific
It’s easy to set vague goals, such as, “I want to buy a house someday” or “I want to live comfortably in retirement.” The problem is that if you don’t know how much money you need, you may underestimate and not save enough, or you may feel overwhelmed, think the goal is unattainable and give up before you even get started. If you don’t know exactly how much you will need to reach each goal, ballpark figures can be useful.
Writing down your goals can also help. It’s easy to get off track if you have an unexpected bill or want to buy a new gadget or go out to dinner. Seeing your goals in writing can help you stay focused.
How to Create a Financial Plan
Make a list of your short-term, medium-term and long-term goals. Short-term goals might include building an emergency fund. Paying off credit cards and vehicle or student loans might be short- or medium-term goals, depending on the balances. Saving for a down payment on a house could be a medium-term goal, and investing for retirement could be a long-term goal.
Figure out approximately how much money you will need for each goal and an approximate date when you want to achieve it. If you have a lot of high-interest credit card debt, work on paying it off as quickly as possible to avoid spending money on interest instead of on your other goals.
Next, create a budget. You need to know how much money you have coming in and going out each month to figure out how to reach your goals. If you spend more than you earn or don’t have much left over to put toward your financial priorities, look for ways to increase your income and/or reduce your expenditures.
You could take on a part-time job, find a way to earn money from a hobby or look for ways to trim your monthly expenses. For example, you could switch to a more limited cable package or get rid of cable altogether, make your home more energy-efficient to reduce your utility bills, eat out less, and carpool or use public transportation. Once you have made some changes, figure out how much money you can put toward each goal on a monthly basis.
Be Realistic and Flexible
Being focused is important, but you may need to adjust your plan over time as your financial circumstances change. You may have an unexpected medical bill or car repair, or you or your spouse may lose a job. If you have a plan as a starting point, you’ll be able to figure out how to make adjustments along the way to reach your goals.
