You work toward goals all the time. Perhaps you’re focused on a personal goal — like losing weight or getting more sleep — or a professional goal, such as landing a promotion in your current company. In addition to focusing on those ambitions, it’s essential to set your sights on financial goals.
What are financial goals?
Financial goals are measuring sticks that apply to any area of your money management skills that you’re looking to improve.
While setting financial goals is a crucial piece of an individual’s well-being, the majority of Americans struggle to pinpoint something to work toward with their money. In 2020, only 38 percent of adults in the U.S. had specific financial goals, according to research from the Lincoln Financial Group.
Why financial goals are so important
You might think about what you want to achieve with your money, but making that rosy picture of personal finance a reality requires a specific, actionable plan to follow. Goal setting can break down a much larger objective into smaller steps, allowing you to feel an increasing sense of accomplishment as you get closer to reaching it. That positive reinforcement can put some wind in your sails and keep you pushing forward, particularly for the tougher steps that may lie ahead.
Think about running a marathon. Rather than trying to walk out the door and run 26.2 miles tomorrow, you might set a goal to run for 15 minutes today. As you continue working toward race day, the goals continually get more challenging, but your regular progress has helped make the remainder of the training feel more within your reach.
The same principle can apply to setting financial goals. When it comes to money, what gets measured gets done. If you set a goal to save 10 percent of your monthly income, you can regularly look at your account balance to make sure that’s actually happening. Setting those goals is a way to hold yourself accountable on the journey to financial security.
Monitoring and making adjustments to your financial goals
Setting a financial goal is not a set-it-and-forget-it act. To reach any goal, you need to regularly calculate how far you are from getting there. It’s important to monitor your progress and make adjustments where necessary.
How often you track your status depends on the type of goal. For example, if you’ve decided to set a goal to stick to a budget, you’ll need to monitor your progress throughout the month — not only when you’re doing your tally on the last day of the month. By then, it’s too late to recognize if you’re overspending.
For long-term goals such as saving for retirement, those evaluations can have wider windows between them. Perhaps you can use your quarterly 401k statements as your check-in dates, or you can set up a couple of appointments with your financial planner to discuss whether it’s time to shift your strategy.
As you think about your financial goals, it’s important to remember that life happens. You might encounter an unexpected job loss, a huge set of medical bills or some other major event that will derail the initial path you planned. This can mean adjusting those goals or hitting the pause button for a while until you can get back on track. It also may lead to an entirely different set of goals and priorities.
Examples of major financial goals
Some financial goals require your immediate attention while others seem like distant points on the horizon. Those varying time frames will impact your priorities and your strategies for reaching them.
Short-term financial goals
Short-term financial goals are those objectives that demand your immediate attention. For example, if you have accumulated credit card debt, paying it off to avoid additional charges should be at the top of your to-do list. While you’re getting that monthly balance to zero, you’ll also want to set a budget to track your spending and avoid the same pitfall in the future.
There are fun short-term financial goals, too. If you want to take a spring break vacation next year, put together a plan to save for those expenses. With monthly deposits set aside, you can enjoy a getaway without the worry of returning to any debt.
Medium-term financial goals
With medium-term financial goals, you have some additional time on your side. Perhaps you’re aiming to buy a house, and you want to save a sizable down payment of 20 percent to avoid paying mortgage insurance. Maybe you want to save enough money to buy your next car in cash. These goals may not seem like they’re right around the corner, but the right savings strategy will put them a bit closer.
Long-term financial goals
The classic long-term financial goal is retirement. In your twenties, still early on in your career, leaving the workforce may feel like it’s a world away. However, that’s the best time to set a goal: When you have longer to get there and you can maximize an employer-sponsored retirement plan and an IRA. If you wait to set your retirement goals until you’re 45, it may feel like you’re staring up at an impossibly high mountain, and you’ll feel overwhelmed about where to start climbing.
13 popular financial goals
If you aren’t sure where to start with setting your financial goals, consider some of the key milestones that appear on many peoples’ lists.
- Build an emergency fund
- Set a budget
- Get out of credit card debt
- Improve a credit score
- Pay off a car loan
- Save for a vacation
- Buy a home
- Pay off student loan debt
- Save for a child’s college education
- Pay off a mortgage
- Buy a vacation home
- Save for a comfortable retirement
- Leave an inheritance to heirs or a charitable organization
No matter what financial goals apply to you, be sure to add establishing your financial literacy (and constantly strengthening it) to the list. One of the key pieces of your success is being a lifelong learner, dedicated to learning more about saving and investing. With that commitment to education, you’ll be able to set the right goals at the right time.