Personal Finance: Setting Financial Goals

Savings Calendar

Welcome to the journey of financial empowerment! Your journey towards a secure financial future starts today. Achieving a secure financial future requires a combination of smart decisions, disciplined habits, and a commitment to lifelong learning. Setting short, mid and long-term financial goals is your first step to financial freedom. If you're not working towards a specific goal, you're likely spending more than you should.

Short-Term Financial Goals

Setting short-term goals provides you the building blocks and gives you a morale boost for reaching more challenging, long-term aspirations. Achieving these initial steps can be relatively attainable within a year: crafting a budget, establishing an emergency fund, and paying off high-interest debt, i.e. credit card.

Create a Budget

"It's not how much money you make, but how much money you keep" - Robert Kiyosaki

A budget is the cornerstone of financial success. It provides a clear roadmap for your income, expenses, and savings goals. By understanding where your money goes, you can make informed decisions and take control of your financial destiny.

Start by tracking every dollar that leaves your bank account. Choose your favorite method of tracking your money - be an app, a deep dive into your bank statement or the classic pen-and-paper (or excel if your feeling tech-savvy). When you see how much you're spending, your brain starts to strategize on how to save it instead. Watch out for those seemingly innocent small purchases – they're the stealthy spenders that, by week's end, can turn into a surprising stack of hundreds slipping through your fingers.

Create an Emergency Fund

Life is unpredictable, and having a financial safety net is crucial. Try to build your emergency fund that covers three to six months worth of your living expenses. If you're single aim for at least three months worth of expenses to cover your basic needs. But if you're married aim for six months. Open a savings account and set up automatic transfer based on your budget until you've reached your emergency fund goal. Once you've achieved your goal, redirect your transfer payment to your high interest debt.

Pay off High Interest Debt (Credit Cards)

There are plenty of strategies to pay off high interest debt. Step one: list your debts from lowest to highest interest rate. Make the minimum payment on all your debt. Now, choose your strategy - the Debt Avalanche, where you tackle the highest-rate debt first, or the Debt Snowball, where you unleash extra payments on your smallest interest rate debt (excluding your mortgage if you have one).

Mid-Term Financial Goals

Congratulations! You've conquered budgeting, built your emergency fund, and paid off your debt. Now it's time to start thinking about your mid-term financial goals.

Get Insurance

Regularly review and update your insurance coverage. Whether it's health, life, auto, or property insurance, ensuring you have adequate protection is essential for guarding against unexpected financial setbacks.

Pay Off Student Loans

As of 2022, the Federal Reserves reported that 43.5 million Americans have student loans. This is a huge drag on people's monthly budgets. If you have paid off your credit card debt and have your emergency fund, then this would be your next debt to tackle. Lowering or paying off this debt makes it easier to save for retirement.

Dreams to Reality

Some other mid-term goals may be saving for your first home, saving for renovations if you already have a home, saving for a vacation or saving for your wedding. With the majority, if not all, of your debt conquered during your short-term goals, you'll be able to turn your mid-term goals into a reality.

Long-Term Financial Goals

"The best time to plant a tree was 20 years ago. The second best time is now" - Unknown

Your biggest and most import long-term financial goal should be saving enough money for retirement. Start early when it comes to investing for your future. Take advantage of employer-sponsored retirement accounts like 401k and consider individual retirement accounts (IRAs). Consistent and early investments can harness the power of compounding for long-term financial growth.

Estimate Your Retirement Needs

• Remember that budget you crafted during your short-term goals? It's your compass for estimating your retirement needs. Factor in the inevitable inflation and the potential rise in healthcare costs.

• Now, subtract the income you expect to receive—whether from a pension or social security. What remains is the sum to be funded by your investment portfolio.

• Ever wondered about the magic number for your retirement assets? Consider what you presently have and your annual savings. Use an online retirement calculator to do the math. Here's the golden rule: if 4% or less of this balance at retirement can cover the expenses that social security won't, you're on track to retire.

The Bottom Line

Starting on your journey of personal finance is a proactive step to a secured future. Keep in mind, personal finance is personal -customize these ideas to fit your individual circumstances and consider seeking guidance from a financial advisor for a personalized roadmap to success. And remember, consistency is the name of the game. Here's to your financial empowerment!