How to Set Effective Financial Goals – and Stick to Them!
What are your financial goals right now? Do you have any other than winning the lottery and never working again? Wouldn’t that be nice?
Unfortunately, that only happens to the lucky few. So instead of buying your weekly ticket or scratch card and crossing your fingers, it’s time to set some effective financial goals and give yourself a better, more secure future.
Unsure where to start when it comes to setting effective financial goals, what an effective goal is and, most importantly, how to stick to them? We’re here to help.
Why are financial goals important?
According to recent research by NAB, almost half of Australians are worried about their financial future. At the same time, one in four fail to plan for it.
But financial goals are so important to proper financial and retirement planning. With the right financial goals, you can live the life you want to live and get to where you want to be. Achieving them can also reduce stress and bring peace of mind.
Financial goals are essentially any aspirations you have for spending and saving your money. However, they aren’t just dreams and wishes (aka our lottery example). Financial goals involve concrete plans and a regular investment of time and effort to make them a reality.
What are effective financial goals?
To get to where you want to be, money-wise and in life, financial goals need to be effective.
Effective financial goals are essentially ones you can stick to. They don’t just need a plan to achieve them; they also need to be SMART.
SMART is an acronym often used in business which stands for:
- Specific
- Measurable
- Achievable
- Relevant
- Timely (have a set time frame)
This means you need to:
- Clearly state your goal
- Have a way of measuring progress
- Be sure it’s realistic
- Make sure it’s meaningful to you
- And has defined target date.
Effective financial goals also have plans in place for setbacks. In other words, you’ve considered the things that might stop you from achieving your financial goals and made allowances and adjustments for them.
Types of effective financial goals
There are three main types of goals you should include when setting effective financial goals. These are:
- Short-term goals
- Medium-term goals
- Long-term goals
Short-term financial goals help you almost immediately – say within a year. Medium-term financial goals make your life easier in the next few years. Meanwhile, long-term financial goals benefit a future ‘you’ down the track.
Short-term financial goal examples
- Create an emergency fund - This can reduce your money worries, cushion you in an emergency, and provide an intermediate funding source.
Tip: Put money into a high-interest savings account, so it builds over time.
- Set up the right insurances - This includes income protection, life insurance, long-term disability insurance, and health insurance. Not only can this protect you and your loved ones, but it gives you peace of mind.
Tip: Review your current insurance policies, and make sure they’re the right ones. In other words, you’re not under or over-insured (paying for something you don’t need).
- Live on less than you earn - If you can live on less than you earn, you will always have enough money for savings, investments and for paying off debt.
Tip: Success here ultimately comes down to smart budgeting, which we cover further down.
Medium-term financial goal examples
- Get out of debt - Including paying off your credit cards and personal loans. This is important if you want to make the most of your finances. It means you have full control of your income, leaves you more for savings and investments, and reduces debt-related worry and stress.
Tip: Look at refinancing or consolidating your debts to achieve better rates and help you better manage them. Apply the snowball approach. Ideally, stop borrowing!
- Buy your own home - Despite the struggles of getting on the property ladder we’re seeing every day, buying your own home is still a great financial goal to have. You can build equity, have more control of your costs, and you’re essentially saving money through your mortgage repayments.
Tip: Aim to have about 20 per cent of your home’s purchase price saved and look at Federal Housing Administration (FHA) loans.
Long-term financial goal examples
- Plan for early retirement - This gives you a head start on retirement even if you have issues along the way and can be a godsend if your health or family circumstances change.
Tip: Make voluntary contributions to your superannuation fund or another retirement plan.
- Pay off your mortgage - This allows you to own your home outright, reduce debt and save money on interest charges.
Tip: You can do this sooner by making extra repayments, higher repayments or finding a mortgage with a lower interest rate.
- Save for your kids’ education - Putting children through school, training, and university can be costly, so the sooner you start putting away for it, the better. It helps set them up for a better future.
Tip: Figure out how much you’ll need and set up an education savings plan.
In addition to setting responsible short, mid and long-term financial goals as above, don’t forget to include some fun ones.
Fun goals include things like saving for a holiday, a large flat screen TV or a boat. Not only is it a good way to reward yourself, but it’s also great for practising self-discipline as the reward is very enticing.
Success starts with a budget!
Once you’ve decided on your goals, figure out what’s achievable and make them SMART goals. For this, you need to create a budget.
Creating a budget involves:
- Determining your income - Usually, this means the amount you take home each month after tax.
- Figuring out your fixed expenses - This includes things like rent and mortgage, utility bills, insurance premiums and debt repayments.
- Estimating your variable expenses - This includes costs such as entertainment, eating out, shopping and travel.
- Putting it all together and doing the sums - Add up your monthly income and deduct your fixed and variable expenses. If you’re in the negative, something needs to change. Only once this number is positive can you start planning for your future.
Not great with numbers? Use our handy budgeting calculator tool to help create your budget. We’ve also provided some helpful budgeting tips.
Sticking to financial goals
Once you’ve adjusted your budget so you have a little money to play with, you need to prioritise your financial goals – start with your short-term goals – and figure out the best way to achieve them. As well as saving, you might consider investing.
If your financial goals are SMART and your budget realistic, you have a greater chance of sticking to them. On top of this, make sure you regularly track your progress and monitor your budget. Use a tool or spreadsheet.
Other ways to keep yourself on track include:
- Focus on your why - What do you hope to achieve, and what are the end benefits? Knowing this will keep your family secure and motivate you to keep going. Create a vision board if this helps.
- Label your accounts in line with your goals - For example, ‘Our First Home’ or ‘Kids Future’. This makes it easier to track each goal.
- Set up automated monthly transfers - For example, side hustles or passive income.
- Reward yourself along the way - While you don’t want to be splashing out on the unnecessary, giving yourself a little reward when you reach goals or steps towards a goal can be a great motivator. Even a trip to the beach counts!
- Engage a professional - Not only can professionals help you set your goals and create a budget, but they can also keep you accountable.
Sticking to effective financial goals equals freedom
Setting and sticking to effective financial goals is your path to less stress and greater life freedom. Even if you’re living on the breadline, it is possible to rethink your budget and make your money work smarter and harder for you, your family and your future.
Is unmanageable debt preventing you from setting and achieving financial goals? Get in touch with our team of debt solution specialists today on 1800 534 534 for professional, non-judgmental support and advice.