How To Effectively Set The Right Types Of Financial Goals

How to create financial goals with S.M.A.R.T.?

• What do you want to have or what do you want to accomplish?
• Why is it important for you to accomplish this goal?
• Who is involved with your goal? Do you need help to reach it?
• Where is it?
• When do you need it by? (more on this later)

• Do you have the resources to achieve the goal? If not, can you get the resources you’re missing?
• Has it been accomplished before by others?
• Are you able to commit yourself to reaching the goal?

Setting goals with Dave Ramsey:

Here’s a video from The Dave Ramsey Show where he discusses goal setting. His method can be summarized by the following points.

• Discover why you want to accomplish the goal
• Make it measurable
• Make it specific
• Make it time-bound
• Write your goal down

Prioritizing when you have different types of financial goals

It’s pretty common to have multiple financial priorities. Building an emergency fund, getting out of debt, investing in the market…all these are good financial goals that are competing for your dollars. So, how do you decide what to do first?

If you’re a fan of Dave Ramsey’s, you know that his 7 baby steps prioritize your financial goals for you.

But if you’d prefer to establish your financial priorities without the 7 baby steps, another method is to use something called the Eisenhower Matrix.

In his book “Getting Things Done”, David Allen uses the Eisenhower Matrix to figure out which tasks should be done first, and which can be done later.

This technique can help you determine which you of your financial goals may be the most important. For example:

• Urgent and important: Debt payments; Emergency fund
• Urgent but not important: Taking a vacation
• Not urgent, but Important: Investing, 401(k) contributions
• Not urgent and not important: Saving up for a new large screen TV

You probably won’t be delegating to someone else. And of course you’ll have to make some judgement calls…

But using this technique will give you a pretty good idea of which types of financial goals should be tackled first.

Related Post: How to Smash Common Obstacles and Reach Your Financial Goals.

Types of financial goals: Short, Medium and Long Term

A big part of learning how to set financial goals and achieve them is learning how to set the right target dates.

 Some will be short term, while others will be medium or long-term goals.

Short term financial goals

Short-term goals are important because you can reach them quickly and they can give you the confidence and motivation to tackle bigger goals.

Short-term goals can be stand-alone goals, but often they act as stepping stones to larger goals.

Here are examples of some common short term goals:

Create a budget you can stick to and track your expenses: Make sure you can meet financial needs by setting up budget goals and tracking your expenses. It’ll show you where you money is going, and also how much money you’re wasting every month!

A great app to help you budget is Empower. With it, you can customize your budget categories and stay on top of your budget.

If you’re not big on saving receipts, an easy way to track your spending is to use the free app, Personal Capital.

Personal Capital will keep track of everything for you and show you exactly how much you spent and where.

Build an emergency fund: Things happen. Your car will break down, you’ll drop and break your smartphone, or something else unexpected.

A good short-term goal is to build a starter emergency fund so that you can deal with these things without the stress.

Cut back on your expenses: Another short-term goal to consider is adopting a more frugal lifestyle.

There are some expenses, like food and entertainment, that you can reduce now to keep more money in your pocket.

Save for minor repairs and home improvements: A short term goal might include saving for small home improvements.

Personally, we wanted to get new curtains in a few rooms. It was a relatively small thing, but it was a goal we were able to accomplish pretty quickly.

Medium-term financial goals

By tackling some short-term goals, you’ll be in a much better position to accomplish medium-term goals. Some examples of medium term financial goals you may consider are:

Paying off your credit cards: The average household with a credit card carries over $8,000 in credit card debt! Maybe yours isn’t that high, but I’m willing to bet it’s higher than you want it to be!

Because of that, paying off your balance completely may be a medium-term goal.

But after accomplishing some short-term goals (budget, reduced expenses, and extra income), you should be able to tackle this one. 

Improving your credit score: Raising your credit score and reaching your credit goals isn’t something you can do in one or two months. It’s one of the intermediate financial goals.

It requires time and effort, but a high credit score will open doors and help you make financial progress if you commit to it.

Related Post: Money Management Hacks  You Can do Over Coffee.  

Saving 3-6 months of expenses as a full emergency fund: Having a fully funded emergency fund will really take the stress off.

It’ll also give you the stability to solve financial problems without having to resort to using a credit card.

Contribute to your IRA or 401(k): Current demands on your money may keep you from making the contributions you want to your retirement plan.

But a solid medium-term goal is to get yourself in a position to make those contributions. If you have absolutely no retirement plan, you should consider signing up with Acorns.

With Acorns, you literally start out by investing your change.

Related Post: Why You Must Keep Spending Money on Yourself.

Long term financial goals

Just because these goals are far off in the future doesn’t mean you’re not working on them now.

Most short and medium-term goals are lead-ups to arriving where you want in the long-term. Some long-term goals you may want to think about are:

Figuring out your retirement needs: Your retirement is probably far off in the future, but it’s a good long term financial goal to have now.

At some point, you’ll want to sit down, figure out your retirement objectives, and take some serious steps to make sure you’re on course to retire.

There are ways you can come up with estimates yourself, but in the end,  you’ll want to talk to a financial planner.

Paying off your mortgage: If you’re a homeowner, I’m sure you don’t want to spend the next thirty years paying off your house.

Although mortgages are long-term contracts, there are certain things you can do to pay it off quicker, like making bi-monthly payments or sending extra payments for the principal.

Saving for you child’s college education: With rising tuition costs, some say that it’s better to learn a trade than to go to university.

But if you’ve got kids and you want to save for their education, you’d better start early.

There are two plans that can help you with this long-term goal. 

• Education Savings Accounts (ESAs)
• 529 Plans 

ESAs allow you to contribute up to $2,000 a year per child. Contributed money is then invested in stocks, bonds or mutual funds.

The other option is 529 plans. These are similar to ESAs, but the details vary from state to state.

Some ideas on how to make and save money for financial goals

• Save any bonuses you get
• Save your tax refunds
• Take a money-saving challenge 
• Sell your old stuff on Decluttr
• Pick up a side hustle
• Consider putting your savings in a high yield saving account like CitBank.

Setting The Right Types of Financial Goals – Wrap up

Setting S.M.A.R.T. financial goals will put you in a better position to accomplish the types of financial goals you want. And creating small, medium, and long-term goals that build off of each other will make it easier to reach the big goals you set for yourself.

You’ll face setbacks along the way. But the important thing is to stay consistent and keep building the daily habits that will help you achieve your ideal financial situation.

We gave some examples of financial goals here, but we’d love to know what are your financial goals. Let us know in the comments below!

Cheers!