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Creating a list of financial goals can help you create and stick to a monthly budget. When you have a clear picture of what you’re aiming for, working towards your target can feel more achievable.
What are financial goals?
A financial goal is a target to aim for when managing your money. It can involve saving, spending, earning, or even investing.
The stage of life you’re at may determine what type of goal you wish to achieve. For instance, students may not be too worried about having enough retirement income. They may be more likely to have short-term goals, such as making enough money to afford a holiday or to buy a car. Someone with a growing family, on the other hand, may be more likely to have longer-term goals, such as buying a new home.
Why are financial goals important?
Setting financial goals can be an important first step in anything from paying off debt, to saving for a comfortable retirement. They can help you visualise the necessary steps to make smart money decisions that help you reach these financial milestones.
Setting financial goals can also contribute significantly to reducing financial stress. The clarity and structure provided by goal-setting help alleviate financial anxiety by offering a clear roadmap.
Short-term and long-term financial goals
Timeframes for financial goals are largely categorised into short-term, medium-term, and long-term goals.
- Short-term goals are usually achievable within a year and are for relatively small things, like funding holidays, paying off credit cards, or setting up an emergency fund.
- Mid-term goals. These can be achieved in the short term, but often take up to five years. This may include buying a car , or paying off a larger amount of credit card debt, for example.
- Long-term goals. These take longer than five years to reach and may include things like paying off student loans or funding a retirement plan.
For other goals, the time and cost may be uncertain, or open-ended. For example, you may know you want to save for a deposit on a home, but not yet know when you’re likely to end up buying or what it’s going to cost.
How to set financial goals
Whether you do it yourself or rely on professional help, here are five steps to setting financial goals:
- Decide what goals you want to work towards.
- Create a budget using your monthly income and deduct all your monthly expenses. It’s also important to be realistic about how much money you need to live on, including essentials like your food, gas, electricity and water, as well as money for things like travel and socialising.
- Using how much you can save and the cost of the goal, turn each goal into a monthly payment. This will give you a rough timescale to achieve the goal. Sort out what can be a short-term, mid-term or long-term goal.
- Decide how and where to save your money. Think about how often you plan to set money aside, and whether you may need access to it or not. This may dictate the type of savings account you’ll need.
- Monitor your progress. Make sure you’re hitting your goals. If you’re not, pause and evaluate what’s going wrong.
