How To Set Financial Goals

I’ve written a lot here about financial goals and the importance of having them.  So I thought it might be time to provide an updated post with some important tips around setting financial goals.

Goals help create the road map to financial freedom.  A lot people don’t believe in setting goals, but in reality, we all have little goals we set throughout each day.  You most likely have a goal to get out of bed in the morning (right?) get to work on-time and eat lunch.

These are all small goals set to help determine the course you’ll take for the day.  Well, financial goals are really no different.  Think about your goals as little steps to getting to where you want to go.  Sure, you have to have big picture goals for the future, but sometimes those can be overwhelming to think about.

Spend most of your time focusing on 1-2 short-term goals.  Before you know it, you’ll have those achieved and will be a little bit further along your financial journey.

Step 1:  Determine Your Starting Point, or Where You are Today

The best way to do this is to create personal financial statement.  You can download a template here.

Assets and Liabilities

In order to create a financial statement, you’ll need to identify all of your assets and liabilities.  An asset is something of value you own.  You may own a car, house, clothes, jewelry, etc.  Add up what you think all of these things are worth.  Liabilities are what you owe to someone.  You may own a car, but if you have a car payment, the total amount you owe to pay off the car is your liability.

Subtract your liabilities from your assets to determine your financial net worth.  Now, don’t worry if it’s low or even negative.  You’re going to set some goals to increase your financial net worth over time, so try to be patient.  :)

Step 2: Learn Some Characteristics of Financial Goals

Long-term and short-term financial goals

It’s important to distinguish between short-term (next 5 years) and long-term goals (beyond 5 years).  Short-term goals are the ones you’ll focus on the most.  It’s good to have 1 or 2 short-term goals that you’re focusing on at one time because anymore becomes overwhelming and your efforts might become diluted.

It’s still good to keep in mind the long-term goals (how about achieving true financial freedom with no more debt and a fully funded retirement), but don’t let them overwhelm you right now.  Focus will be your best friend and key to achieving the long-term goals someday.

Goals Change at Different Stages in Life

Also keep in mind your financial goals may change depending on your stage in life.  For instance, many younger parents now have a goal to save for their children’s education.  But that certainly won’t be the case for someone in their 60′s.

Step 3:  Make a List of Financial Goals You Want to Achieve

Okay, it’s time to identify some financial goals.  As mentioned earlier, we have all have some goals, even if you’re not a goal-oriented person.

What are some examples of financial goals?  Here’s a hint:  common goals include to creating a budget, saving more money, becoming debt free and buying a house or car.  You might even have a goal to get spending under control.  Have you been to Starbucks, or the mall a little too much lately?

In determining your goals, here are some questions you can ask yourself to prompt some thinking:

  • Do I have a budget?
  • Do I need to establish or grow emergency savings?
  • Do I have debt which I would like to pay off?
  • Do I have children and plan to fund their college education?
  • Do I have retirement savings?
  • Do I desire to save for family vacations?
  • Do I need to financially support other family members?
  • Do I want to own or operate my own business?

Start making a list of the things you feel you need to accomplish.  It can be rough list at first.  Just get our pen to paper and list everything that comes to mind.

Your Values and Goals

Keep in mind the importance of values when it comes to goal setting.  Whether you realize it or not, your values, what you care most about in life, will determine what actions you take and your perspective on certain matters.  For instance, a Christian may value giving or tithing to the Lord as one of the most important financial goals.  Don’t dismiss what you care deeply about in creating goals.

What About Important Goals you Don’t Know Anything About?

While  you might be able to get some great goals listed, you may not know everything you need to accomplish.  That’s okay because you may not consider yourself a financial expert.  That’s where resources such as Dave Ramsey’s Baby Steps, or the Crown Financial Ministries Money Map come in [Note:  you can read a series on the Money Map and Baby Steps which provides information for both approaches].  They both provide great road maps to financial freedom and can give you some ideas of goals you need to accomplish.

SMART Goals are Important Too

After you’ve write them down, try to reword them into SMART goals which means:  specific, measurable, attainable, realistic and timely (when you plan to obtain it).  For example, I will pay off all of my credit cards in 1 year by getting a new part-time job, selling my boat and paying an extra $200 per month towards them.

Review and Update Your Goals Often

Once established, you should plan to review your financial goals at least once per year, but mostly likely every 6 months.  As mentioned, your goals will change based on different stages of life and certainly a goal might change within a year.

Step 4: Determine the Right Priorities for Each Financial Goal

Dave Ramsey’s Baby Steps are a great practical tool to help tackle financial goals in the right order and to get out of debt.  Again, you don’t want to dilute your efforts by trying to work on too much at once.  This often leads to very little forward progress and frustration and is why many people throw their hands in the air.

If you have a goal to get out of debt, find where it may be located along the Baby Steps.  In setting priorities, list all your goals in order according to Baby Steps.  You can also use the Crown Money Map for the same purpose.

  1. $1,000 In An Emergency Fund
  2. Pay Off All Debt With The Debt Snowball
  3. To 6 Months Expenses In Savings
  4. Invest 15% Of Income Into Roth IRAs And Pre-Tax Retirement Plans
  5. College Funding
  6. Pay Off Your Home Early
  7. Build Wealth And Give!

Once you have your goals and have set the priorities, you’re read to start setting up a plan and tracking it.  You may even want to set up a 5 year financial plan to track the goals you’ll accomplish within those 5 years.

About Jason Price

Jason Price is a family man saved by grace, passionate about faithful financial stewardship (1 Cor 4:2 NIV), soccer and the Pacific sun.