The process of setting financial goals may seem a little tricky, especially if you haven’t done it before, but with a few handy hints, you’ll be on your way to defining your goals in no time at all. Read on to learn more about what financial goals are and how you can start planning your own for 2022.
Financial goals are monetary targets used to help you manage your finances over a period of time. They may include savings goals, earning goals, investing goals and spending goals. Financial goals come in all shapes and sizes, meaning that the financial goals you set may vary greatly from those set by a friend or family member.
Examples of financial goals
Some common examples of financial goals include:
- Building an emergency fund to cover unexpected expenses
- Saving a specific amount of money for a holiday, new car or house
- Paying off debt, whether that be a credit card balance, a loan or another form of credit
- Saving for a comfortable retirement
It can be hard to know where to start when setting financial goals. While it won’t always be an easy task, there are some steps you can take to help make the process a little easier.
1. Take stock of your current financial situation
Before you start thinking about what your financial goals for 2022 may be, it’s a good idea to take stock of your current financial situation. By looking at your current income, your recurring expenses, any debts you may have and your savings balance, you can find areas that you may want to improve in the future.
Without acknowledging the current state of your finances, it can be challenging to determine the best steps moving forward. For example, you may be excited to save for a holiday or a new car, but you may have a large amount of existing debt that you should deal with first.
2. Decide what you want to achieve
Once you have a better understanding of your current financial situation, you can set aside some time to come up with financial goal ideas for the coming months and years. Think about any essential financial goals, such as paying off debt and building an emergency fund, as well as aspirational goals, such as saving for a holiday, a home or a new car.
What you want to achieve may vary depending on your life stage, lifestyle and financial priorities. You might be starting to prepare for retirement or having children, looking to travel the world or a combination of several different goals.
3. Set SMART financial objectives
The SMART framework is used by many to help set personal and business goals, but it can also be helpful when setting financial goals. The framework is comprised of five key elements that help to define well-constructed goals:
- S for specific goals
- M for measurable goals
- A for achievable goals
- R for realistic goals
- T for time-bound goals
A specific financial goal clearly outlines what you want to achieve. For example, instead of saying that you want to save more in 2022, you’d say that you want to save $10,000 in the next year.
Measurable financial goals are those that you can track the progress of. If you want to save $10,000 over ten months, saving $1,000 each month would keep you on track.
It’s great to be optimistic about your financial future. Still, it’s important to think carefully about whether you will be able to achieve your goals given your current income and financial obligations. For example, saving $500 a month may be achievable for many, but saving $10,000 per month is unlikely to be possible for most.
Before settling on a goal, it’s very important to take some time to think about whether your targets are realistic or not. If you only earn $3,000 per month and want to save $50,000 in six months with no additional income, it’s not something that you’ll be able to achieve. Weigh up your current income and financial obligations to determine whether your goal is realistic or not.
For a goal to be time-bound, you need to set a specific date that you hope to have achieved it by. While it’s often not the be-all and end-all if you don’t achieve your goal in a certain period of time, it can help to keep you motivated.
4. Prioritise your goals
Categorising your goals into short-term, mid-term and long-term timeframes can help prioritise your goals and better allow you to understand which to focus on first.
Short-term financial goals
Short-term financial goals are often smaller financial targets that can be achieved in approximately 12 months or less. This type of goal could include saving for a new computer or holiday.
Mid-term financial goals
Mid-term financial goals typically take between one and five years to achieve. Common mid-term goals include paying off a credit card or personal loan.
Long-term financial goals
Long-term financial goals generally take more than five years to achieve. These goals are focused on larger achievements, such as saving for retirement or purchasing a house.
5. Select actions to help you reach your goals
Setting financial goals is a great habit to get into, but you also need to think about the actions you’ll take to turn those goals into a reality. Depending on the goals you set, you might choose to start spending less on non-essential purchases, work towards paying off your credit card debt or even start putting money away for your retirement.
Defining the specific actions you’ll need to take to help reach your goals will make it easier to get started and help you stay on track. If you decide that you’ll need to save $500 per month over 10 months to be able to afford your next holiday, you’ll know that you’ll need to set that much money aside each month. The same principle also goes for paying off debt.
6. Write your goals down
Not only is writing down your goals a great way to organise your thoughts and keep track of the goals you set, but putting pen to paper can actually increase your chances of taking action to achieve your goals. You might choose to write your goals in a notebook, pop them on a piece of paper on the fridge or fill out a spreadsheet that you can update and add to as you work towards them. Choose a method that works for you and allows you to revisit your goals as often as you’d like.