Basics of Financial Goal Setting

Basics of Financial Goal SettingAchieving a physically fit body is a journey. We begin the journey by evaluating our current level of physical fitness. This can be done by looking at, among other things, our weight, our cardiovascular strength, our endurance and our flexibility. We then identify what changes we want to make, and set physical fitness goals. For example, we can determine how much weight we want to lose, the number of inches we wish to shed, and how much flexibility we want to have. These fitness goals allow us to have something to work towards.

Once we have completed these first two steps, we must make the decision to stick to these commitments, and back it up by daily action, such as healthy eating, exercising, and working with a professional. This same principle applies to planning a road trip. Before we go on the trip, we evaluate where we are, and determine where we want to go. Once we have these two places, we can map our route. And this same principle can be applied to financial fitness. We are able to become financially fit by evaluating our current financial situation, determining where we want to go financially, developing a plan to take us on this journey, and then backing it up with daily actions and habits.

Financial Goal Setting

Financial goal setting is nothing more than mapping out your financial journey. It is a process whereby you see where you are financially, and determine where you want to go financially. Financial goal setting is typically divided into different time horizons; short term, midterm, and long term. Financial goal setting has many benefits. One such benefit is it helps give you direction with your finances, which makes the financial journey much easier. Just as when you take a trip, without a map or a GPS system, you may arrive at your destination, but it can be a long and painful journey, and you get lost many times along the way. Without a financial map, the financial journey may also be long and painful, with many wrong turns along with way. With financial goals, we are able to develop a financial map to take us to our destination. Financial goal setting also helps us keep track of our money.



The first step in financial goal setting is writing down your top 10 to 15 goals that require money. This list can include things like, buying a home; paying off your debt; saying money for your children’s’ college; having a savings account for emergencies; buying a new pair of shoes; and much more. Once you have at least 10 financial goals written down, you can then divide them up into time horizons. For example, buying a new pair of shoes, and saving in an emergency fund would be considered short term financial goals. Paying off debt and saving money for a down payment on a home could be considered midterm goals. And having a college account for your children could be considered long term financial goals. Some of these goals can then be broken down into smaller, more manageable goals. For example, funding a college account for your children can take 18 years, but you can have savings goals in the account for years 1, 5, and 10.

Setting financial goals is a very simple exercise that must be revisited at least every 6 months. Setting your financial goals is not a onetime exercise that just sits stagnant in the top draw of your work desk, because goals do change over time. And as you achieve your financial goals, they must be updated accordingly. For example, over periods of time, you will purchase your home, which will change the outlook of the financial goals. These changes must be evaluated, and the goals must be updated accordingly.

Short Term Financial Goals
Short term financial goals are considered those that will be accomplished in one year or less. They can be independent goals, or they can be a smaller, more manageable piece of a larger, longer term goal that you have set. An example of an independent short term goal could be saving money in an emergency fund; and a short term goal that is a smaller piece of a larger goal, could be paying off 10% of your overall credit card debt. Financial goals can be saving toward a goal, or perhaps reducing spending over a period of time. For example, a short term financial goal can be that you wish to reduce your monthly coffee drinking to $5 per week, rather than purchasing a coffee every day. Overall, you could have a short term financial goal of reducing your coffee drinking from $100 to $25 per month.

Midterm Financial Goals
Typically midterm goals are those that will be achieved in one to five years. Because there is a longer time frame, these goals usually require more money. For example, a midterm financial goal could be saving $15,000 to pay for a down payment on a house.

Long Term Financial Goals
Goals that will require more than five years to accomplish are considered long term goals. An example of a long term goal could be paying for your child’s college education, or saving for your retirement. Because of the long term horizon of these goals, it is a good idea to break them into smaller, shorter term goals. For example, if you are saving for your retirement and your retirement is 30 years away, it may be a good idea to have a retirement savings goal for the 5, 10, 15, 20, and 25 year mark. This will help you stay focused and on track.

Action Steps for Financial Goal Setting

The most important step for Financial Goal Setting is the Action Step. This is where you put into practice the knowledge you just acquired. The Action Step for Financial Goal Setting is to decide today that you will not go to bed without writing down your top 10 to 15 financial goals. Most people never put a plan together, because they are waiting for the moment when they have the perfect plan. A plan, any plan, is better than no plan at all. And it is time to take action today. In the financial goal setting stage, it is always helpful to have the input and the guidance of a financial professional.

Step 1: Write down your goals
Write down your top 10 to 15 financial goals

Step 2: Break goals into time frames
In Step 2, you will need to divide your goals into time horizons – short term, midterm, and long term. The input of a financial professional in this stage is very helpful.

Step 3: Deadlines
Have deadlines for your goals. After you have broken down your goals into time horizons, be sure to assign a deadline to each goal. A deadline gives you a sense of urgency, as you now have something to work towards, and there is a specific time frame in mind. Without a deadline, it is very easy to get distracted. Imagine while you were going through high school or college, if your teachers had told you to take the final exams whenever you wanted. For many, graduation may never have happened! But with a deadline, you were able to stay on track.

Step 4: A Professional
Enlist the help of a financial professional, as they are trained to help you move forward financially. They can help you identify goals and strategies to move you towards the goals.

Step 5: Review
Remember to review your financial goals every few months with your financial professional. For example, once you achieve a goal, celebrate your victory by having your favorite ice cream. And don’t forget to update your goals to include new ones.

Financial Goal Setting Chart

These financial goal setting worksheets can help you begin the process of establishing and planning your financial goals for you and your family. Remember to visit these worksheets every six months to evaluate your progress.

Goal List Example
Things That I Want – That Require Money
Short Term ST (less than 1 year), Mid Term MT (1-5 years), Long Term LT (5 year +)

1. Emergency Fund (ST)
2. Vacation to Hawaii (ST)
3. College funding for children (LT)
4. Purchase a second home (MT)
5. Pay off debt (MT)
6. Home improvements (MT)
7. Retirement money (LT)
8. Take parents to Europe (ST)

Download Goal List ExampleGoal List WorksheetGoal List Example and Worksheet.

Article by Lisa Sehannie

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