Setting goals and not reaching them is a disappointment. People often blame themselves when they fall short of a goal. If only they had tried harder, the thinking goes.
But effort isn’t the only reason people fail to accomplish an objective. Sometimes the goal itself is the problem. Some are too difficult to achieve regardless of one’s intentions.
This is especially true of financial goals. It’s admirable to have financial objectives. But people sometimes set a money-related goal without examining what needs to happen to make it a reality.
For example, people often set a goal of retiring by a certain age with a certain amount in their retirement account. Others want enough for a dream vacation or a house within a certain number of years. Sending kids to college without a massive amount of debt is another common goal.
But people don’t always do the math. They may not save enough. They often overestimate their annual returns. Most people don’t factor in the realities of life and the unplanned events that cost money and interfere with those financial goals.
Here are eight ideas on how to set financial goals you can achieve, both for the short-term and long-term.
Setting long-term financial goals while mired in debt is like starting a race a lap behind the other competitors. So first things first, let's talk about getting out of debt.
Try to avoid debt as much as possible, especially unsecured debt like credit cards and retail accounts. Unfortunately, student loan debt is next to unavoidable for most Americans. So is taking on a mortgage to become a homeowner, which may also present a significant financial obstacle to achieving goals.
If you have significant debt, make a plan to pay down as quickly as possible. Focus repayment efforts on high-interest rate debt first. Also, if you have several personal loans, medical bills, and/or multiple credit card balances, you should consider consolidating those unsecured debts into one loan.
In addition to simplifying your life to one monthly debt payment, you can also potentially lower your interest rate and the amount of money you spend each month on loan payments.
The first step is to actually know what your goals are. Be specific: Know what you want, when you want to accomplish it, and how much it will cost.
Some individuals approach saving by trying to accumulate as much as possible. That’s not necessarily bad. But just trying to save a large amount isn’t enough.
If you’re not sure what you’re saving for, it becomes too easy to either a) save every dollar and never enjoy life because you “never have enough”; or b) deplete your savings on the first shiny object that catches your eye.
Determine what you want to achieve financially. The most common goals include:
- Saving for children’s college
- Buying a house
- Buying a car
Others may include:
- Charitable giving
- Starting a business
- Home improvements
You need to divide the financial goals that you set into short-term and long-term efforts. The former includes objectives that are ongoing or that you would like to occur within five years. The latter are those goals you’re saving for down the road.
In addition, you need to prioritize your financial goals. Which are the most important? What goals could you do without?
To increase the odds of hitting your financial targets, you need to know how much it will cost weekly, monthly, quarterly, and/or annually. How much should you save each month to afford the house you want in five years, the college education for your two kids in 18 to 20 years, and the ideal retirement in 35 to 40 years? Not to mention the other items on your list.
This will be a challenging exercise, but a necessary one. Otherwise, you may fall short on all of your financial goals despite your best efforts.
You can work with a financial planner to pinpoint those amounts or utilize one of many online calculators.
[ Related read: 13 of the best personal finance tips ]
To maximize your ability to reach goals, you will have to invest some of your savings. Definitely you will for long-term goals and perhaps for some short-term ones.
When doing the math, you should estimate your annual returns conservatively. This is especially true if you invest in low-risk funds like money market accounts and municipal bonds. But even when investing in stocks, it’s better to underestimate.
If you plan on achieving, say, 10 percent each and every year, you may find yourself falling considerably short. On the other hand, planning for a lower return doesn’t hurt you because whatever returns exceed those estimates is essentially extra money.
Financial goals are often derailed by unexpected events, such as job loss, long-term illness, or major home repair.
It’s during these times that people often rob their college funds, 401(k)s, or other accounts. While this may help in the short-term, it may have repercussions later.
One way to avoid this is to save money in an emergency fund.
An emergency fund is money set aside to help you through unexpected events that can hurt you financially.
Financial experts suggest that your emergency fund should hold an amount equivalent to at least three months of take-home pay. Another rule of thumb is to have enough to cover essential expenses for three to six months in the event you have no income.
Another way to avoid using long-term money in an emergency is to invest in disability insurance.
Disability insurance covers the potential loss of income caused by injury or illness. If you are unable to work because of a covered disability, the policy will replace part of your income. You will receive these benefits for as long as you’re disabled or up to a maximum period of time spelled out in the policy.
Money you can access with just a few clicks on a smartphone app is not ideal for long-term saving. It’s too tempting and too easy to pull some out every time you fall a little short before payday or see a big-ticket purchase you just can’t live without.
On the other hand, if you’re required to fill out a form, sign it in front of a notary, wait several business days and perhaps even pay a tax penalty to get your money, those are the hoops you want to jump through to get long-term goal money.
This is why it’s a good idea to save retirement money in a 401(k) or IRA and college savings money in a 529 plan. These plans are for specific purposes and using the money for something other than those purposes can damage your long-term finances. That’s why it’s so difficult to access the money within those plans before certain ages or events.
Financial goals are some of the most challenging to accomplish. That’s because so much is beyond your control. Jobs are lost. Stock markets crash. Accidents happen. Disasters and global pandemics occur.
Just know that if you take the actions that are within your control — saving, watching your spending, working hard — you will be better off financially than you would have been without working toward those goals. Even if you fall a little short.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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