Some people think worrying about tomorrow will spoil the goodness of today. But, the reality is, financial planning is as important as eating food. If you want to enjoy a stable and healthy financial life, then you need to plan for your financial future.
The problem is, when it comes to planning for the financial future, many people fail to understand where to start. A major part of Americans set up financial goals in the beginning of the year, but just 8% of them can achieve their goal successfully. What is the reason behind this poor result? The reason is, many people don’t know which goal to prioritize and how to achieve it.
How can you set financial goals?
The golden rule is – set a plan and follow that plan.
Here are 9 basic plans you can follow to improve your financial situation:
1. Formulate a budget and stick to it
Most experts agree that budgeting is useful and a great first step when it comes to setting and reaching your financial goals. It helps to track your expenses and to get a clear understanding where your money is going. By planning a budget, you can meet your necessary expenses while saving a certain portion of your income regularly. However, you have to create a realistic budget, stick to it, and revise it from time to time.
2. Pay off financial obligations
This is considered one of the top financial goals. Interest charges on credit cards or other debt accounts can eat up so much of your cash flow that could be put toward other objectives and financial goals. So paying off debt should be your first priority.
At a bare minimum, make sure you pay off the owed amount on time every month. Consider lifestyle changes to save more money to use it for paying off your debts. Once you pay off the debt, you can easily manage your financial situation effortlessly. However, if you feel your debt burden is unmanageable, then it is advisable to seek professional help.
3. Putting money into a savings account
Saving money in a savings account should be a given as part of planning for your financial future. When you are planning, make sure you start contributing a stipulated amount each month into the savings account. The experts always recommend to save at least 10% of what you make in a month to build a savings fund. Irrespective of the amount you make in a month, you should save at least this amount to secure your financial future.
Having money in a savings account will provide you with a sense of confidence to achieve bigger financial goals.
4. Spend less than what you earn in a month
Make a list of the income that you make in a month from your day job and any other sources of income, and any investment assets. Then make another list of what you spend in a particular month on all your needs and wants. Check whether or not your expenses are more than your income. If they are, you need to take some solid steps to curb your expenses and always keep them less than what you make in a month; lest you fall in a deep financial mess.
To do this successfully, you need to fill your wallet with cash instead of credit cards. Thus, you can avoid pushing yourself further into the credit card debt hole. When you can’t afford to buy something with cash today, you should postpone purchasing that thing.
5. Build an emergency fund
When you have an emergency fund, you can avoid taking out a loan during a financial crisis. You can use your emergency fund to paying off any unexpected expenses without having to go into debt. In a fragile job market or during an economic crisis, an emergency fund is a life saver. So, saving a considerable amount in an emergency fund should be one of your financial goals. It is recommended by most experts to save at least 3-6 months’ worth of expenses in an emergency fund, with some suggesting saving up to a year or more of expenses.
6. Prepare for retirement
You should prepare for your life during retirement, therefore, you need to have a proper investment plan so that you have a smooth financial life after retirement. Is your workplace providing you with a retirement account? If so, are you contributing a portion of your monthly income? You should be contributing at least up to your employer’s match, if they offer one, otherwise you are literally missing out on free money! Though a matched contribution from the employer is a boost, you also shouldn’t delay making contributions just because you’re not getting a matched contribution if that is not something your workplace offers. This should act as an untouchable fund and you shouldn’t withdraw money before your retirement age so as to avoid any kind of unnecessary fees.
7. Review your insurance policies
If you don’t regularly review your insurance policies, you may pay more on insurance coverage by unknowingly paying for coverage that you don’t need. You should review your auto insurance policy and your health insurance policy periodically and check whether or not you need all the coverage that you’ve taken on. For example, you may have chosen a full coverage auto policy when you first bought your car, but now it’s several years old and you don’t need coverage to be as comprehensive. It’s also a good idea in general to shop around for different insurance policies because you could save by switching to a new company or plan.
Prioritizing your Financial Goals
The golden rule is – Categorize and prioritize.
Not every goals is the same. Some are more far reaching while others are easier to achieve. So it’s important to to categorize and prioritize your financial goals.
Renovating the home, replacing the thermostat, or planning a vacation are all examples of short-term financial goals, whereas, buying your dream home, building a fat retirement fund, investing money, or saving money for child’s education fall under the category of long-term financial goals. These financial goals usually take much longer to achieve.
Things like purchasing a car or paying off debts (credit card debts, student loan debts, payday loans) might be called mid-term financial goals, depending on the amounts owed.
How can you be more focused on your financial goals?
Many people set financial goals, but few remain focused on achieving them. Most people fail to achieve their financial goals because they lose interest soon.
To remain focused on your financial goal, you can:
- Write down one goal at a time in detail. The goal should be realistic, achievable.
- Set a timeline for the goal and decide if it is a short term, a long term, or a mid term goal.
- Revise your budget and make necessary changes as per your planning to achieve the goal.
- Consider some room for fun. Self rewarding is very important to remain inspired.
- It may be helpful to set easy and short-term goals first. Accomplishing the easiest goals can boost a sense of confidence and give you the push you need to keep working toward the bigger goals.
- If achieving your financial goals requires some lifestyle changes, take note and plan accordingly. You may need to cut unnecessary expenses, save aggressively, or earn some extra money. Think positively, otherwise you may not be able to stick to your plan. All these may sound daunting, but not impossible.
Tips to Set Financial Goals Smoothly
Keeping track of your goal is very important. If you set a number of goals and don’t keep track, you will be stuck in the middle. Plus, you can celebrate when you meet your goals!
- Affix a note of your goal to the door or wall for a visual reminder.
- Mark a calendar with goal milestones as you achieve them.
- Take advantage of apps that make tracking goals much easier.
Lastly, there is no other option but to set monetary goals when you want to lead a peaceful financial life. If you don’t know the right path, walking randomly will not help you to reach the right destination. By planning for your financial future, you’ll set yourself up for success in reaching your financial goals.