It’s no secret that Americans struggle to save enough to reach their financial goals. Close to one-third of American households have less than $1,000 saved. If you find that you have no direction when it comes to saving money, it’s time to start setting and achieving your own financial goals. Here’s the best way to begin.
ESTABLISH S.M.A.R.T. FINANCIAL GOALS
Can you imagine hopping in your car with no destination in mind? If you don’t establish a clear goal, you could end up driving in circles. The same concept is true for your financial goals.
To define your objectives clearly, try creating “S.M.A.R.T.” goals. SMART is an acronym that means Specific, Measurable, Achievable, Relevant, and Time-related. Here’s how to apply this concept to your own financial goals.
Vague goals can be challenging to stick to and difficult to monitor, essentially setting you up for failure. The more specific your goals are, the easier they are to track and adjust. For example, instead of saying you would like to save more, say you would like to contribute 5% of your income to your 401(k).
To track your headway, your goals need to be measurable. For example, if you set the goal of paying off your $1,000 credit card balance, you will know you’ve achieved it when you have a zero balance.
The easiest way to ensure success is to set goals you can achieve. For example, if you make $60,000 a year but want to pay off your mortgage of $100,000, this goal may be unrealistic. Review your income and determine what’s truly realistic.
When defining your goals, make sure they are pertinent to your current financial situation. It may not make sense to save for a down payment on a home when you don’t plan to move for another ten years. You may want to consider paying off high-interest debt or contributing to an emergency savings fund first.
Lastly, determine a timeframe for achieving your goals. If you establish a start and completion date, it will help you accomplish your goals.
SET SHORT-TERM AND LONG-TERM GOALS
Not only should you set goals for the future, but you should set goals for the here and now. Establishing short-term goals can boost your motivation for completing your long-term goals. Your goals should complement each other in such a way that once you achieve one, it aids you in the completion of the next.
For example, a short-term goal would be to pay off your $1,000 credit card bill within the next two months. A long-term goal might be to begin saving for a down payment on a home within the next three months. These goals complement each other because by paying off your credit card you’re freeing up extra cash to save for your down payment.
REVIEW AND ADJUST YOUR FINANCIAL GOALS
Just because you’ve defined your goals doesn’t mean you shouldn’t make adjustments and reassess your financial situation. Life is ever-changing, which may require you to adapt your goals along the way. Take the time to review your goals and progress regularly and determine if they’re still your top priorities. If not, it’s okay to adjust and establish a new direction.
Setting financial goals doesn’t have to be a daunting task. With a little preparation and proper planning, you bring your goals to fruition.