Want to know how to set financial goals?

Ready to get clear about your financial future?

If so, keep on reading as I’m going to show you step-by-step how to set financial goals.

WHY YOU NEED TO SET FINANCIAL GOALS?

When it comes to setting goals I’d always recommend that people complete a wheel of life first so they can ensure that the goals they are setting cover the different aspects of their life. You can read more about the Wheel of Life here. Almost every wheel of life example I’ve ever seen always has a section for money or finances. Money plays a major role in our life and therefore it is important that you assess how you feel about our current financial situation and if you aren’t happy with where you are that you create a goal and action plan to change your financial situation.

It is also important to set a financial goal for yourself otherwise it is easy to get caught up in this idea of always wanting more money and never having enough. Setting financial goals will make you think about your relationship with money and get clear on how much you want and what that means for your life. By getting clear on your financial goals this should help reduce the risk of you getting sidetracked.

STEP 1: GET CLEAR ON YOUR CURRENT FINANCIAL SITUATION

Before you do any goal-setting you should get clear on your current financial situation. It always amazes me how many people don’t know what their current financial situation. I’m not advising you check your financial situation so you then limit your goals, but by knowing your current situation it will help you be more realistic when it comes to the timings of your financial goals.

To get a clear understanding of your current financial situation there are two things you can do:

1. Your current monthly income and expenditure

Are you someone who is currently living within your means or are you spending more than you are earning each month? If you have already created a personal budget for yourself then this will be super easy and you can probably answer that question in a minute. If however, you haven’t already set yourself a budget look back over the last three months of bank and credit card statements and make a note of how much you earnt and spent each month.

2. Your net worth

This is where you look at your overall financial position. You make a note of all of your assets (savings, property etc) and all your liabilities (credit card debt, loans, mortgage etc). Then you subtract your liabilities from your assets and that is your net worth.

By working out these two figures you are now in a great place to set financial goals for your future.

STEP 2: DECIDE YOUR BROAD FINANCIAL GOALS

Next, it is time to set your financial goals. In the first instance, you are likely to set a goal that is broad. Here are some examples of common financial goals:

• Clear credit card debt
• Save for a deposit
• Have an emergency fund
• Save for retirement
• Be mortgage-free
• Financial independence

Now the reason I recommended you checked your current financial situation first is because when it comes to financial goals there are some common paths to follow.

At this stage, it is a good idea to think about both your short-term and long-term future. For example, it may be that your current goal is to save for a deposit on a house, but you also know you want to be mortgage-free in 20 years. Making a note about both these goals because that will help you when you come to creating your action plan.

Also, whilst there is a financial ladder it doesn’t mean you have to get to the top. Everyone has different goals in life and you can choose the stage that you want to reach. 

Whilst a lot is written about financial independence you have to choose whether it is the ultimate aim for you. To work out whether it is right for you read Is financial independence the ultimate money goal? 

STEP 3: SET SMART FINANCIAL GOALS

Now that you have decided on your broad financial goals it is time to set SMART financial goals. SMART is a goal-setting tool that stands for:

• SPECIFIC
• MEASURABLE
• ACTIONABLE
• REALISTIC
• TIMED

Take each one of your broad goals and make it SMART. Most commonly with money goals you want to set a deadline (this will make it timed and also help you to judge whether it is realistic) and also set a financial amount (this will make it specific and measurable).

You can read more about setting goals with the SMART method here.

There you have it. You now know how to set financial goals.

Setting a financial goal is just the beginning. Next, you’ll need to create an action plan and then follow it.

You can find out how to turn a goal into an action plan here.

And if you have any more questions feel free to ask in the comments box below.