Are you ready to get your finances into ship shape? It’s been several years since I’ve been a financial advisor, but I still have a few pointers up my sleeve when it comes to how to set personal financial goals. Whether or not you handle the family finances, part of running a home is being aware of your finances now…and your financial outlook for the future.
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It’s that time of year—people are taking stock of their lives and spending time to set goals that matter, yet one area that’s often overlooked is finances. Everyone knows that finances matter, but sometimes taking a deeper look at our financial situation can be overwhelming and freakishly scary. Where’s the fun in that?
But I’m here to say that creating a big picture look at your financial situation is a good thing and will help propel you into the future you really want. As I mentioned, I’m not a financial advisor (though I was once upon a time) but I can give some general tips on how to set personal financial goals that make sense for you!
How to Set Personal Financial Goals
1. Gather your bank statements
You can’t figure out where you want to go until you know exactly where you are. Along with your bank statements, find any other savings you have, including retirement (401k, IRA, etc.) Take a close look at:
- How much money is coming in
- How much money is going out
- Recurring expenses that you can reduce
Make note of everything that jumps out at you and feels important.
2. Total up your debts
This part is cringe-worthy and mostly sucks. (Ask me how I know!) But you have to do it. If you skip this step and just say, “Hey, my goal is to reduce my debt” then you’re just shooting blanks. You’re not really serious.
Take a deep breath and total up all your debts. Are they manageable? Are they out of control? Are you behind? Do you even know your credit score?
You need to know what kind of progress you’re making when it comes to debt elimination:
- Are you reducing your debt or increasing it?
- Are you just treading water and trying not to go under?
- What’s causing you to go into more debt?
Take the time to dig in and answer these questions because they are KEY to your financial future. Seriously, friends—we don’t want to be eating dry cat food when we’re too old to work!
3. Look ahead
Think about what’s ahead for you and your family over the next 6-12 months. You have to anticipate situations and incorporate them into your budget and financial goals. Here are some ideas:
- Known upcoming expenses (dishwasher is ready to poop out, kids going to summer camp, the car needs a transmission, someone needs an operation)
- Potential change in circumstances (job change, change in fixed expenses)
There are always going to be situations that pop up that you haven’t planned for thanks to our good friend Murphy, but by planning as thoroughly as possible you can take the sting out of your finances.
4. Make a budget
Don’t say the “B” word!
Actually, the “B” word should be your friend! Now that you know how much money you do (or don’t) have, you can create a budget that works for you and your family. There is a ton of great budgeting advice out there! Here are a few books for you to investigate:
You get to decide whether you want your budget to be rigid or somewhat elastic. YOU are the boss of your budget! The point is to get real about your financial situation and work within your means so you can achieve your goals.
5. Set goals
What type of personal financial goals you set depends on how much money you have in your budget. For example, if you’re drowning in debt you’re not going to be saving for a trip to the Bahamas. But you might be setting a little aside for the transmission you know you need for the car.
In my estimation, there are 3 main types of personal financial goals:
- Debt repayment—eliminating debt to create financial freedom
- Savings—vacations, fun stuff, upcoming known expenses, rainy day, retirement
- Charitable giving—supporting your favorite causes is a good and healthy thing
Obviously you have to pay your debts before you get too gung-ho about additional goals. But when you are in a position to branch out, there are some tidbits to consider. For each potential goal, ask yourself if this goal is:
- Taking you closer to financial freedom
- In line with your values
- Helping your family’s future
- Reasonable for your budget
If your answer to any of those questions is “No,” then it’s worth it to reconsider.
Odds and Ends for Setting Personal Financial Goals
Even if you’re single, you still need to consider how your personal financial goals will affect those closest to you. If you’re married, then TALK. Yes, talk to your significant other and work through these steps together. It’s important to be on the same page when it comes to finances. Of course that’s easier said than done, especially if one of you is thrifty and the other is spendy, in which case it’s even more important.
Speaking of talking, if you’re at the stage where you can start being strategic about retirement, talk to a professional! The value of professional advice can’t be overstated. A professional can take a look at your actual numbers and help you find the best way to reach your goals after you’ve set them.
If you find yourself in the position of having more month than money, then look for ways outside of your “day job” to earn extra cash. My list of 20 ways to make money without getting a job can certainly help, and if you put your brain power in motion I’m sure you can think of 20 more!
Remember, you are the boss of your financial goals. You are in charge of whether or not you achieve them. I KNOW that the unexpected can happen—been there, done that—but careful planning will position you to weather the storms. It’s really up to you!
What kinds of things do you keep in mind when setting personal financial goals?