The start of a new year typically signals a time for creating personal and professional resolutions. These aspirations can inspire us to improve in various aspects of our lives, such as by eating healthier or spending less time on our phones.
One such area that deserves just as much attention but is often overlooked is your finances. Regardless of whether you’re just entering the workforce or preparing for retirement, financial goals can help you build security and give a purpose for your savings. So as you continue easing your way into the year, here’s a closer look at their importance as well as tips for setting them.
Why you need financial goals
There are several reasons you should have targets for your finances. When you set short- and long-term aspirations, you end up with more clarity and focus for your money. Specific intentions give you targets and help you better concentrate on both the how and why behind your savings, in turn keeping you more motivated to meet them. By having something concrete to work toward rather than just a vague goal of saving for some potential purchase down the road, you may be more committed to spending less on unnecessary expenses and sticking to a stricter budget so you can achieve the goal quicker.
With defined goals, you also have the benefit of being able to track your progress. This can help you celebrate the small victories along the way, keeping you moving forward even when funds may get tight. It even enables you to recognize if there are any areas where you could stand to improve. Furthermore, with a strategic plan for allocating your income each month, your finances may end up more structured, which can alleviate the stress or anxiety you could otherwise have. And, ultimately, working toward goals may reduce your financial risks since building your savings can make you better prepared for unexpected expenses.
How to pick them
When determining your financial goals, you want to be specific with your intentions as well as realistic about how you’re going to reach them. For example, if you hope to create an emergency fund that encompasses three to six months of your living expenses, don’t expect to be able to save that in a month. Instead, recognize your limitations and create a plan that works with them. To start, determine how much money you can reasonably put toward your goal each month. Then you can establish a deadline for when you should be able to reach your target number. This timeline adds structure to your financial plan, making it easier to track your progress and adjust strategies if needed.
It’s also important to have a mix of short- and long-term goals. A short-term one could be to create a monthly budget for your household, which could then support your long-term aims, such as paying off debts or saving for retirement. You could even break up your bigger goals into smaller, more manageable ones. With a good balance, you better ensure that you remain focused on your immediate needs while also working toward building a sustainable financial future.
Regardless of what goals you make, keep in mind that life is dynamic, so they will need to be flexible. Your goals may need to change in a year or two as your income, expenses, or life circumstances do, and that’s OK. Just take the time to regularly assess your aspirations and make modifications as needed.
For additional help with your goal setting, consider working with a financial advisor. They can help you create a comprehensive financial plan that’s tailored to your specific endeavors and circumstances.