Without a clear destination in mind for your earnings, your funds will likely continue to drift aimlessly. You may accumulate substantial income monthly, set aside some funds, and invest in various opportunities, but it very likely will not feel as though you are making any advancements. The establishment of defined financial goals will result in the development of true progression and momentum with your finances.
Imagine running with a great deal of effort and energy without having a defined ending point (finish line) in front of you. You are exhausted, dripping with sweat and continuously moving around, and yet you have made no progress toward where you want to go. That is precisely what managing your finances without defined goals resembles. Busy, stressful, and frustrating at best.
Defining your financial goals should not be an overwhelming task; establishing a financial objective should be comparatively to having a goal in any other arena, however it does include a financial component.
Your financial goal might be something like this: You want to buy something; you want to reach some point, and you want to have the ability to say at one point in time, “I did that.” That’s all there is to it, and all you need to do is define the financial aspect of that goal.
Some of the goals can be accomplished in 12 months or less. These are generally “quick wins.” These are typically things such as establishing a basic emergency fund, paying off an annoying credit card, or saving enough money to take a great vacation without incurring debt.
There are also medium-term financial goals that take several years to achieve and will require consistent effort. An example of a medium-term goal would be buying a car using cash, being completely debt-free, and saving money for a home down payment.
There are also long-term financial goals that require a lot of time and effort to achieve without taking shortcuts. Long-term financial goals include retirement savings, paying off a mortgage, and saving for college.
When all three types of financial goals are being worked toward simultaneously, there are great synergies created between the three types of financial goals. These synergies help to ensure that none of the three types of financial goals hurt or negatively impact the other types of financial goals.
“Good” financial goals have an established framework and structure. In fact, a good financial goal has four established components.
First, a good financial goal must be detailed and specific.
However, if a financial goal states that you are saving money for a 2022 model used SUV with a budget of $20,000, then you have a clearer and more detailed financial goal. The more specific details you include regarding your financial goal, the more “real” the financial goal becomes.
Second, a good financial goal is something that you can measure.
Money-related goals are an area where you can quantify measurable results because the numbers are absolute. For example, you either have $40,000 in your college savings account or you do not; and therefore you can track your progress to achieve this goal with ease. Without having quantifiable numbers, you will just keep saving forever, with no end in sight.
The importance of a deadline for goals is crucial. Without a deadline, it is just a dream in the form of a list of things to do. The deadlines provide a sense of urgency, and will help you to convert your “somedays” or “whenever I’ll get to it” into something mathematical.
Example: you have an $1,800 credit card balance, and you have 6 months to pay it. So, you divide $1,800 by 6 and you get $300 a month. Now, you know the exact amount that you need to pay each month in order to pay off the $1,800 balance.
The goal must be something that you control completely; this is much more important than people realise! If you are waiting on others to achieve your goals, that is not a well thought-out plan. You will never have an emergency fund if you do not take responsibility for it and do something about it.
Write your goals down with a pen, on paper. Then, put them in a location where you will see them every day. This may seem like an old-fashioned way to go about writing things down, but it does work! Writing something down creates clarity and provides a concrete representation of your vague ideas.
Financial objectives will determine the path of your finances. Without these objectives, finances can seem meaningless and simply take up space as if on an endless hamster wheel; whereas with these financial goals, you can assign tasks for every dollar. And small successes give you the confidence to keep moving.
Now for the interior truth of all this:
Your finances will start to work in harmony with your direction when you have a specific goal. When you do not have a specific goal you are going to wander around aimlessly.
