Financial planning is very important when it comes to structuring your finances. To keep track of your income and expenses, you will need a solid financial plan to guarantee a financially secure future. One of the important steps in developing a financial plan is setting your financial goals. Goals on a general note can be classified into short-term, mid-term, and long-term goals. This is also applicable to your finances. Setting financial goals guides you on how to set aside a percentage of your income as savings and how much will also go into investment. You may think you have time on your side before retirement, don’t be deceived because time flies and you will only have yourself to blame if you have not adequately prepared for post-retirement. We will be discussing the importance of setting financial goals and how to set smart financial goals to secure your future.
Why Is Setting A Smart Financial Goal Is Important
It is one thing to set financial goals, it is another thing to set smart financial goals. Smart financial goals will allow you to put in place effective savings and investment frame works that will ensure you meet your financial goals both in the short term and long term. Smart financial goals are important for the following reasons:
Sense of Direction
Setting goals gives you a sense of purpose and direction and having one for your finances is very important. Without financial goals, you do not have a reason to save or invest part of your income for a secured future. You will fall for every financial temptation, buying things you do not need and borrowing money you have no means of paying back on time. Smart financial goals give you direction on your finances by telling you how much you earn and give you a clear idea of how much is convenient to save and invest. Smart financial goals will identify what lifestyle you desire for yourself and also guide you on how to invest smartly so as to grow your wealth to meet this lifestyle.
Smart financial goals will help you identify the best investment strategy that will help you meet these goals. If you have modest financial goals, you can come up with flexible strategies that will ensure you enjoy a bit now and still plan for your future. For those with ambitious financial goals, you may need to combine a few investment strategies to meet these goals.
Setting smart financial goals will instill discipline when it comes to your finances. It will tell you how much to set aside as savings and investment to meet your goals. It will prevent you from spending money on what will stretch your budget and what you do not need.
Shape Your Career Choices
When you set smart financial goals, you do everything in your power to meet up with these goals and part of what you can do is make the right career choices that will earn you more and increase your savings and investment. If you have a 9 to 5 job, and you have an ambitious financial goal, you may want to look at starting your own business or taking on more gigs so as to increase your income. When you know what you want financially, it guides your decisions on how to achieve them.
Difference Between Short Term Goals and Long Term Financial Goals
Short-term and long-term goals may seem self-explanatory but when it comes to finances, some intricacies must be understood in order to avoid placing what should be short-term in the long term goals. This may affect your savings and investments and you may end up not achieving your set financial goals.
Short-term financial goals have to do more with your immediate expenses. They vary according to personal needs and timelines. Generally, short-term financial goals are usually between 1 month and one year. Most people use short-term financial goals to settle their credit card debt, set up emergency funds, and save for minor home improvement, holiday expenses, and payment of other utility bills.
Long-term goals, on the other hand, are usually set from 5 years and above. Long-term goals require more strategic savings and investment planning and you may need the help of a professional. Some things that fall under long-term financial planning include retirement planning, mortgage payment, and starting your business.
In between these two sets of goals, it the mid-term goals, these set of goals usually take a few years to accomplish and some of the short-term goals and long-term goals can overlap as mid term goals. Some mid-term goals include paying off debts and buying a car.
How Do You Set Smart Financial Goals?
The ‘smart’ in smart financial goals could be termed as an acronym that means Specific, Measurable, Attainable, Realistic, and Timely. These five components when applied to your financial plans will give you some degree of assurance of a secured future. To create a smart financial plan, there are tips you should follow so as to get the desired result. Some of the tips include:
When highlighting your financial goals, ensure that you are specific as to what you want. Avoid basing your goals on some conditions that may or may not happen. Being specific with your goals will give you clarity and every step from then on will be intentional and towards achieving the goals. Know what you want and how much you want it.
When you have outlined specific goals, it becomes easy to track. You can create points of measurement in-between your plan to see if you are on your way to achieving your set goals. For example, if you set out to save $12,000 in 12 months, you could assess your progress after 6 months to see how far you have come. You can also set weekly targets to ensure you are progressing steadily towards your goal.
In setting your goals, whether moderate or ambitious, ensure that they are goals that your current financial situation can attain or close. When setting your goals, also ensure your strategies are achievable. Do not base your strategy on possibilities or guesswork. For example, you set a goal of $50,000 in savings in 12 months with a $1,000 income. How do you want to achieve that? Simple. By keeping your goals within your means.
When your goals are realistic, then they are attainable. This ties directly to the above. Sometimes, long-term goals may seem unrealistic but when you break it down and have a measurability frame work in place, it will make it easier and realistic. You can always review and change.
After identifying your specific goals, with a measurability framework and you have determined that they are realistic and attainable, the last part is to put a timeframe on the attainment of your goals. Give yourself reasonable time, do not choke yourself. Putting a timeframe also instills discipline and focus towards achieving your financial goals.
While these steps will get you closer to setting smart financial goals if you ever feel overwhelmed by the process. Do not fail to involve a financial expert. You can choose to develop your financial goals and run them by your financial advisor for his input.
10 Examples Of Smart Financial Goals
Eliminate Credit Card Debts
Collate all your credit card debts and the interest rate, then assess how much from your income you can conveniently set aside to service all your credit card debt. Set a time frame and ensure that it is a realistic time frame.
Create An Emergency Fund
An emergency fund comes in handy when there is an unexpected urgent expense that needs tending to. It prevents you from dipping into your savings and investment. This is a reasonable financial goal that you must have. You can set a time frame of 6 months to 1year to build an emergency fund. Set the amount you want and make sure it is attainable with your current income.
Set Investment Goals
This is the fulcrum of your financial plan because that is what will ensure the growth of your wealth to secure your future. In deciding on your investment goals, set out specific asset growth you want to achieve in the long term and identify the best investment strategies and portfolios that can help you achieve these goals. Investment goals could be from 10 years so it is advisable to have a variety of portfolios that will ensure your investments are balanced and attainable within your set timeframe.
Whether you are retiring early or at a regular age, it is always important to have retirement savings plan to cater for your post-retirement. If applicable, you can set up a RRSP through your employer with a convenient percentage as a contribution, your employer might match a certain percentage of what your contribute as well. Your retirement lifestyle goals and the duration before retirement will determine your contribution. Ensure your retirement lifestyle is a realistic one.
Earn More Money
If you can, having multiple streams of income will go a long way in helping you achieve your financial goals. It allows you to set more money aside for savings and investment. Take per-time jobs and set aside a percentage of the earnings. Set a time frame you want for your side hustle. This is a relevant financial goal for those looking to save more money.
This is spending part of your income on how to better manage your finances. You can take online classes or buy books on financial management. This will go a long way in making sure you are financially mature. It will also help you with financial goals and investment strategies.
Own Your Home
If you have the extra income, you can take advantage and set a goal of owning your home in the next 10 years. You can make two mortgage payments till the end of the year and see how far you have covered the principal sum. Take stock at intervals to measure your progress.
This is a very important goal. Protecting your life and your assets can not be overstated. You can subscribe to life insurance, disability insurance, or car insurance.
It is never too early to start an estate plan. Setting family goals will go a long way in structuring your estate plan. You can provide for your loved ones and create a legacy for when you are no longer around. An estate plan is not a death sentence, it is a smart financial goal.
Start Your Business
Although it is often said that not everyone is built for a self-made life but it is worth considering. Running your business means taking your fate into your hands. You can always run a business side by side with your 9 to 5 job. Set aside your capital and set specific goals for your business and soon enough, you can set aside part of your profit to meet your financial goals.
Smart Financial Goals Conclusion
Setting specific financial goals and applying the SMART concept will go a long way in securing your financial future. The essence of smart financial goals is to have flexible financial plans that will give room for financial market fluctuations for your investment and other uncertainties. Do not forget to be as realistic as possible. Set aside periods when you will do some sort of check-up on your financial plan to monitor the progress you have made towards attaining your financial goals.