If you’ve been reading here awhile, you have hopefully taken the time to organize your financial accounts and calculate your household net worth. The next step in this process is to set your personal financial goals and priorities.
These goals are going to be unique to you and your family only. You can talk to your friends or mentors about their priorities, but know that there are many different paths to take on the road to financial independence.
Setting goals is the cornerstone to making progress over time, so that you can envision the life you are working so hard for.
When setting goals for yourself, research has shown that physically writing down those goals will improve your odds of achieving the goals in the end. You also want to be very specific.
First, ask yourself some basic questions. Why do I want to improve my finances? What major events in my life will I need pay for? When will these events occur?
After you have listed out the financial goals you’d like to achieve, ask a few more questions. When do I want to achieve this goal? What is one small step I can take today to move closer to my goal?
For example, let’s say your primary goal is having a successful retirement. You could write down the following:
“I want to retire by the time I am 60 years old, so that I may have a successful and fulfilling career, yet am young enough to enjoy years of travel and time with my family. In order to move closer to my retirement goal, I will increase my retirement savings percentage by 1% today.”
Go through this process of writing down each goal, so you can begin making immediate progress.
Prioritize Your Goals
It would be great if we could set all of our goals and have the resources to fund all of those goals immediately. However, this isn’t usually the case for most individuals. After setting your goals, you now will need to prioritize those goals, so you know which goals to put your resources towards.
What happens when you have a list of goals, but only so much money at the end of the month to put towards those goals? Your list of priorities will determine when and where the goals will receive their resources.
Let’s say you have three main goals - saving for retirement, paying down student loans, and saving for your newborn’s college tuition. Unfortunately, you only have enough money coming in each month to successfully save for two of those goals. Do you spread your monthly cash flow across each goal, or take it one at a time?
As selfish as it may sound, you always want to save up for your goals before those of others. In other words, be sure you are on track to fully fund your retirement goals before saving for your kids’ college. College tuition can be paid for via student loans if funding is short, your retirement cannot.
In other cases, when it comes to paying down debt versus saving for retirement, a little more analysis may be in order. As a rule of thumb, any high-interest (8% or more) debt should be a priority over investing. With debts that have a lower interest rate, like student and car loans, it may be more beneficial to pay over time and start investing. This decision will ultimately come down to your current financial standing and how averse you are to carrying debt.
If you come up short in being able to fund the goals toward the end of your list, you will have to do some more planning on how to begin saving for them. You can take a fresh look at your budget and see if there is room to cut back. Starting an easy side-hustle on the weekends could bring in hundreds, if not thousands, of dollars in a short period of time. Any additional money you now save or earn can be put towards your personal goals.
Today, look over the goals you have established and put them in order of priority. The order in which your financial goals land is personal to you, but remember to make sure your financial house is in order before shifting focus to others.