It’s a good idea to set financial goals, no matter where you are in life. Financial goals can help you manage your spending as well as work toward or maintain financial stability. Let’s take a closer look at what a financial goal is and how to set short-term, mid-term, and long-term financial goals.
What is a financial goal?
A financial goal is a spending or savings target you hope to achieve over a certain period of time. It may be a short-term or long-term objective that is driven by your future financial needs or wants. Your financial goals are unique and may be different from those of your friends or family members.
Why are financial goals important?
Financial goals are important for several reasons. They may allow you to meet your short-term and long-term objectives faster. Your financial goals can also motivate you to stick to a budget and avoid overspending. In addition, you’ll find that they force you to prioritize how you spend and save your money.
How to use the SMART financial goal strategy
If you set financial goals, be sure to use the SMART strategy. SMART stands for Specific, Measurable, Achievable, Relevant, and Timely. Here’s what each of these attributes means:
- Specific: Your financial goals are clear and well-defined.
- Measurable: Your financial goals have specific criteria that allow you to measure their progress.
- Achievable: Your financial goals are attainable, rather than impossible to achieve.
- Realistic: Your financial goals are within reach and relevant to your lifestyle.
- Timely: Your financial goals have a timeline, which includes start dates and target dates.
Types of financial goals
There are three different types of financial goals, including:
Short-term financial goals
Short-term financial goals take less than a year to achieve. These may include buying new furniture, taking a vacation, or paying off a credit card.
Mid-term financial goals
While you can’t achieve mid-term financial goals immediately, they shouldn’t take too long to accomplish. Your mid-term financial goals could be landing a higher-paying job, getting a promotion, or buying a new car.
Long-term financial goals
Long-term financial goals usually take five or more years to achieve and often require more money. Some examples of these types of goals are buying a house, paying for a child’s college education, or retiring.
What are some examples of financial goals?
There are a number of financial goals you might choose to set, including:
Building an emergency fund
An emergency fund can be a real lifesaver if your car breaks down, you need an unexpected medical treatment, or any other sudden expense comes your way. Ideally, your emergency fund will have three to six months' worth of expenses.
Buying a home
Homeownership can be a big milestone in life, but it doesn’t come cheap. You’ll need to save money for a down payment, home maintenance or repair costs, and other miscellaneous expenses.
Paying off debt
The less money you spend on debt, the more you’ll have to put toward other financial goals. Debt consolidation or DIY strategies, like the debt snowball or debt avalanche method, can help you become debt-free.
Saving for retirement
Even if you’re young, it’s important to save for retirement so you can take advantage of compound interest. This is the interest you earn on interest, and can add up a lot over the years.
Benefits of setting financial goals
If you set financial goals, you can enjoy these benefits:
When you have set financial goals in place, you’ll be more motivated to meet them. This is particularly true if you celebrate small wins along the way.
Helps you track your progress
Financial goals can make it easier for you to monitor how far you’ve come. Every month or quarter, you can take a look at your goals and figure out whether you’re on schedule to meet them.
Accountability is when you set out to accomplish what you said you would, like your financial goals. It allows you to assume responsibility for your financial future.
How to set financial goals
To design a plan for your financial goals, be sure to follow these steps.
Write down your goals
Jot down your financial goals instead of keeping them all in your head. Make sure each goal follows the SMART strategy. Place your list somewhere you look often, like your fridge or bathroom mirror.
Track your spending
Keep track of how you spend your money in a spreadsheet or expense tracking app. To start, check your credit card and bank statements. Then, group your expenses into categories like food, transportation, and entertainment. Lastly, figure out where you can cut costs.
Create a monthly budget
A budget is a plan for how you’ll spend your money, based on your income and expenses. The most popular types of budgets you may want to consider include:
- 50/30/20: With the 50/30/20 budget, you can allocate 50% of your after-tax income for your needs, 30% for your wants, and 20% for your savings goals.
- Pay Yourself First: Pay yourself first means that you put money toward your savings before tackling your bills.
- Zero-Sum: The zero-sum budget requires you to choose a “job” for every dollar of your monthly after-tax income.
Monitor your progress
Keep track of how well you stick to your monthly budget and financial goals. At every check-in, look at your checking and savings accounts to see if you’re on track. If you’re not progressing like you want to, don’t give up. Change your habits and continue to move forward.
Adjust your plan as needed
Your financial plan is not set in stone. Over time, you may find that your needs and priorities change. If this happens, adjust your plan as necessary.
How to make adjustments to your financial goals
There’s a good chance your financial goals will change over time. Make it a priority to review your financial goals at least once a year and alter them to meet your current needs and circumstances. If your income is higher than when you first set your emergency fund goal, for example, you might want to save more than you originally planned to.
Advance America can help you meet your financial goals
Advance America is pleased to offer many loans that can help you cover expenses to meet your immediate financial goals. From payday loans and installment loans to title loans and lines of credit, you’ll find several financial products that are easy to apply for and don't require good credit. If you get approved for an Advance America loan, you may be able to receive the funds in your bank account the same day you apply.