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As I mentioned before, financial goals are some of the most popular resolutions that people make every year. We’ve talked about getting out of debt and building your savings, but what about other financial goals, such as saving up to buy a home, working on your retirement fund or enjoying a nice vacation? It doesn’t matter whether your goals are big or small, setting goals is an important part of financial planning. Today, Crystal from Money Saving Mom is sharing three reasons we should all be setting financial goals.
Our family’s goals this year are to fully fund our emergency fund, save up for the addition of a screened-in porch and go on a cross-country adventure. We all have different financial goals, but the steps each of us can take today to achieve them are the same:
1. Write down your goals and timeline.
Calculate the exact amount you need for each of your financial goals and write those numbers down. Remember that it’s better to overestimate and have extra money than to underestimate and end up using debt to bridge that gap. Include a timeline of when you’d like to achieve each goal by, break it down into monthly amounts and add it to your budget.
It can be tempting to simply name a goal without taking the time to see if it’s even possible, but you’re much more likely to achieve it if you think it through.
For example, if you want to take a vacation to Disney World, you need to first calculate how much the trip will cost you, being realistic about the expenses for food, park entrance, accomodations, souvenirs and so on. Let’s say you set a budget of $3,000.
Next, set a timeline for achieving your goal. If your trip is planned for March of ’11, that gives you 13 months to achieve your goal, but you probably want to be sure it’s fully funded by February so that you’re not scrambling at the last minute.
Divide your goal by your timeline to calculate your monthly goal amount. Based on the numbers above, you need to save up $250 a month. At this point, you need to decide if your goal and timeline is reasonable based on your budget .
It’s okay to set a goal that stretches you, but be realistic or you’ll just end up discouraged.
If you’re married, it’s so much easier to achieve a financial goal if you and your spouse are on the same page. It’s hard to scrimp and save if only one of you has a vision for your goals.
Finances are one of the biggest sources of marital conflict, but they don’t have to be. Commit to working through your differences and finding common ground. Figure out what your overarching goals are — to live debt free, to live below your means, etc. — and then what your short- and long-term financial goals are. Make sure you approach your goals as a team and dream together! Crystal has also been sharing how she and her husband met their goal of saving up to pay cash for their first home, and I’m sure she’d agree that it would have been a lot harder, if not impossible, if they didn’t share that vision!
3. Put money toward your goal first.
Just as you should set up automatic transfers to your savings account, you should figure out how much money is in your budget for a specific goal and set up those transfers automatically as well. If you have variable income and can’t set these transfers up automatically, pay your basic bills and then immediately transfer whatever you can to savings. If you leave money in your account for a rainy day, you will most likely spend it. Get it out of your account as quickly as possible!
4. Check your progress monthly.
Monthly check-ins are a critical part of achieving any financial goal. Take time to check and write down your progress so that you stay motivated to keep moving forward. It can be tempting — especially when you’re unable to meet your monthly goal — to simply ignore it and pretend it’ll all work out in the end, but it doesn’t usually work that way. Evaluate your progress (with your spouse if possible) and be realistic about the status of each goal.
5. Adjust as needed.
It may be that the $250 a month from our Disney World example above is too much for your budget right now, and sitting down to evaluate it on a monthly basis gives you time to either change your goal or consider other income opportunities to help you achieve your goal. Too often we ignore problems with our finances with the hope that the problems will just go away if we don’t acknowledge them. Instead of approaching your budget and financial goals that way this year, tackle them head on and be proactive as you look for ways to achieve your goals.
What are your financial goals is 2010? Have you written your goals down and set monthly goals to help you achieve them?
The 31 Days of Organizing for a Better 2010 series is sponsored by Get Organized Wizard. Find ready-made action plans, organizers and checklists for more than 200 projects in the Life & Goal Organizer.