Setting your financial goals is important if you earn little, take loans, and do not know the best way to invest for maximum return.
To set an effective financial target, you need to:
- Assess your current financial situation
- Define a clear and achievable goal
- Prioritize your financial targets
- Create and follow a strict budget
- Set up automatic savings even if you earn very little
- Monitor and adjust your goals regularly
- Seek professional help if needed
A real-life example of how a defined financial goal helps
Nine years back, I earned $2,000 per month and had 1,500 mandatory monthly expenses. I had to maintain a credit card and my daughter was growing up. I had no chance to save at all.
I calculated my income and found that roughly $500 goes each month, which is a few items I could minimize.
So, I decided to save $300 in three months and targeted to pay off one of my debts of around $1,000.
I paid $1,000 in debt in six months and could save $5,000 in two years.
I defined my goal, prioritized my action (to pay off the loan), and made and followed a budget that helped me to save $300 per month.
After a few months, I automated $150 savings as an additional security, and each month, my bank deducted that amount regularly.
In four months, I was used to this automated savings.
Not only that, I’m still now having professional help to diversify my investments which gives me a chance to maximize my savings to face future uncertainty.
Assess your current financial situation
To be strict with a financial goal, you need to assess what you earn, what are your cost-incurring sector and how can you make savings out of them.
You cannot ignore this first step.
So,
Calculate your total income and expenses. Identify your debts, savings, and investments first.
The Consumer Financial Protection Bureau (CFPB) suggests starting with a clear understanding of your financial situation to set realistic goals.
After that, you can easily track your expenses, minimize any unnecessary costs, and make regular savings like how I did.
Define your financial goals
After assessing your current earning situation and personal cash flow, you need to set a realistically achievable financial target.
I chose to save $300 in three months when my earnings were $2,000. What ever is your earnings, if you have a personal cash flow summary, you can easily identify what could be your potential savings per month.
According to a study by the National Endowment for Financial Education (NEFE), setting specific, measurable, achievable, relevant, and time-bound (SMART) goals increases the likelihood of success.
what will you do in this step?
Categorize your achievable goals in short, medium, and long terms.
For example,
- Short-term goal: Save $500 in an emergency fund within six months.
- Medium-term goal: Pay off $2,000 in credit card debt in one year.
- Long-term goal: Save $20,000 for a down payment on a house in five years.
Prioritize your financial goal
After assessing and categorizing, you need to prioritize your financial targets. To me, my priority was to pay off my $1,000 debt in one year.
You may also focus on paying off your debt or, building an emergency fund for any future uncertainty.
I suggest if you have any high-interest debt payables, just pay that debt off. Persons with high interest rate debt, cannot save too much as most of the earnings are consumed by the banks due to larger APR.
Research by the Financial Industry Regulatory Authority (FINRA) indicates that prioritizing financial goals can help manage financial stress and improve financial health.
Create a budget and follow it
Now, you have your financial goals, and you need to make actions accordingly. In this stage, a budget is a must.
You need to list down what are your must-do things per months and how much money are you incurring over the avoidable issues.
For example, you cannot minimize your budget for mortgage payments but, you can choose a gym without a trainer.
But, how would you make a personal budget?
Use the 50/30/20 rule: Allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment.
You may use google sheets or personal budgeting apps to make and keep track of your personal cash flow each month.
The CFPB also recommends budgeting as a fundamental step in managing money and reaching financial goals.
Here are some effective tools to build a personal budget:
- Try YNAB (You need a budget). Free for 34 days, with many features accessible during the trial period.
- There’s a website named – Personal Capital that combines budgeting tools with investment tracking.
- EveryDollar is another useful personal budgeting tool that has a free version with essential budgeting features.
- Learn using Google Sheets, and my simple formulas you can make a budget and a personal dashboard for you.
We listed a few, a simple Google search can find similar tools for you. However, always stay away of financial scams.
Set up automatic savings
If you have assessed, defined, categorized, and prioritized your expenses, this is really high time to set up automated savings.
To make automatic savings, you just need to talk to your bank and give them a formal instruction to deduct a particular amount each month into your savings account.
Such automatic savings would also give you interest that boosts your credit scores.
To set up automatic savings:
Set up a direct deposit to a savings account for a portion of your income. Or,
Use apps or bank features to automate savings and debt payments.
A study by the American Savings Education Council (ASEC) found that automating savings can significantly increase the likelihood of reaching savings goals.
Monitor and adjust your financial goals
Monitoring and adjusting your financial goals is a crucial step in ensuring you stay on track and adapt to any changes in your financial situation.
According to a report by the Federal Reserve Bank of New York, regularly monitoring financial progress and adjusting goals can help maintain financial discipline.
Here’s how to effectively monitor and adjust your goals:
- Set Regular Check-Ins:
- Schedule monthly or quarterly reviews of your financial goals.
- Use these sessions to assess your progress, update your budget, and make necessary adjustments.
- Track Your Progress:
- Keep detailed records of your income, expenses, savings, and debt repayments.
- Use financial tools or apps to track your spending and savings automatically.
- Celebrate Milestones:
- Acknowledge and celebrate small achievements along the way.
- For example, if you’ve paid off a credit card or reached a savings milestone, reward yourself in a meaningful yet financially responsible way.
- Adjust Goals as Needed:
- Life events such as job changes, unexpected expenses, or changes in income may require you to adjust your goals.
- Be flexible and willing to modify your goals to reflect your current situation.
- Seek Feedback and Advice:
- Discuss your progress and any challenges with a trusted friend, family member, or financial advisor.
- Getting a second opinion can provide new insights and keep you motivated.
- Stay Motivated:
- Remind yourself of the reasons behind your financial goals and the benefits of achieving them.
- Visual aids like charts or goal trackers can help keep you motivated.
- Revise Your Budget:
- If your initial budget isn’t working, don’t be afraid to revise it.
- Adjust your spending categories and reallocate funds as necessary to better align with your goals.
Seek professional advice if needed
If you get puzzled meanwhile, you can take professional help from a real finance expert. You can go through our blogs or contact our professional team for financial advice.
The Financial Planning Association (FPA) suggests that professional guidance can provide tailored solutions and increase financial literacy.
How can you get free financial advice to set a personal financial goal?
- You can install mobile apps that give free suggestions
- Study the Consumer Financial Protection Bureau (CFPB)’s free resources and tools to help you manage your money.
- There is a government website (MyMoney.gov) offering free advice on budgeting, saving, and investing.
- Federal Trade Commission (FTC) also offers resources on managing debt and avoiding financial scams.
- The National Foundation for Credit Counseling (NFCC) also offers free and low-cost financial counseling services.
- The Financial Planning Association (FPA) Pro Bono Program does have some really helpful financial planning resources, especially for underserved communities.
- You can also access budget counseling and financial education from American Consumer Credit Counseling (ACCC).
- Many libraries offer free access to financial books, magazines, and online databases.
- Some libraries host financial literacy workshops and seminars.
- You can utilize social media platforms like Facebook and LinkedIn groups or forums like Reddit to learn more on personal budgeting.
Conclusion
There is no alternative to facing future economic uncertainty and building economic safeguards for you and your family. A personal financial plan is highly essential even if you are single as well. No matter if it is a sudden car breakdown or, an accident – you always need a financial backup.
A financial backup is only possible if you learn how to assess your financial need, make a budget accordingly, prioritize and follow your plans, and keep track of everything you planned.
Good luck
