Managing your money is more complicated than it sounds. There are a lot of rules and tips out there, from endless budgeting techniques you should try to investment guides for every stage of life. In reality, how you create your financial goals depends on plenty of factors: your income, lifestyle, cost of living, and plans for the future.
While there’s no one-size-fits-all approach to financial planning, you can definitely start by reading up about the different things to consider when creating your financial goals. Before you dive deep into the specifics, it’s essential to know the terms and purpose behind the practice.
What is financial planning?
A financial plan is a map of a person’s current financial standing, including income and assets, together with their long-term monetary goals. These goals should be backed up with strategies to achieve them in specific timeframes (three years, five years, ten years, etc.).Financial planning is commonly practiced by small business owners and corporations but is highly beneficial for individuals and families, too. While financial plans should be firm, you can’t always predict what can happen in the future. That said, these maps should also include emergency strategies, like where to get funds in case a crisis will hit.
Why should you have financial goals?
While money certainly can’t buy everything, it does pave the way to a brighter future and a more comfortable life. Having financial goals isn’t just a fancy term to track your expenses—it’s that, plus a detailed direction of how you can grow your money. Here are some things you can gain from having a plan for your money.
- You can manage your cash flow effectively – It’s easy to spend your money if you blindly make every purchase. Having a goal keeps your eyes on the real prize—and not just that new item you’re eyeing on your favorite online store. Your goals can keep you in check and get you into the habit of saving money.
- You can reduce financial risk in the future – Things can get pretty unpredictable in the long run, and you always want to be prepared for a rainy day. Your goals and strategies can help you find faster ways to grow your money, so you don’t have to deal with emergencies that can be huge setbacks.
- You can sleep soundly with retirement plants – A financial plan includes a retirement plan, as well. It’s designed to keep you covered and comfortable until your golden years, so you don’t have to work as hard during that time.
- It will give you peace of mind – There’s no better feeling than not having to worry about how you’re going to pay the bills. Having goals (and following them) will provide you with confidence in how you earn and where you spend in money.
Factors That Influence Your Financial Plan
Some internal and external factors may dictate how you can build your financial plan. Knowing them will allow you to adjust or strategically ride out your circumstances. Below are some examples.
- Lifestyle – Things like your hobbies and interests, the place and type of home you are living in, the places you go to every year for vacation, and the kind of car you have are just some of your lifestyle indicators. Having an extravagant lifestyle would mean putting in more considerable investments.
- Timeframe – How much time do you need to achieve your financial goals? Usually, the younger you are, the more flexible your goals tend to become. But, if you’re the head of your family in your mid-30s, there may be a bit more sense of urgency with your goal setting.
- Income – Not everyone earns the same way and amount. If you have a high-paying job, this will bode well for you in the future. However, there’s also a possibility that you would have to work multiple jobs just to get to the level of income you desire.
- Financial literacy – Of course, the more you know about how to grow your money, the more things will work out in your favor. Luckily, in the age of the internet, this is an easy fix.
There are plenty of webinars, eBooks, and other resources that can give you a crash course in understanding your finances better, like the basics of investing or how to interpret the stock market.
- Socioeconomic Circumstances –The place you’re born into and its economy will influence how you plan for your finances. This may only change if you make permanent decisions to move out of your home country. Note that the factors mentioned above will also adjust (cost of living, income level, timeframe, etc.) if you decide to do so.
5 Tips to Reach Financial Goals
Being smart about your money has some universal rules. If you apply these strategies to reach your financial goals, then you are guaranteed to see results. Since each person’s financial standing varies, choosing which tips to prioritize from this master list is up to you.
- Know where your money is going
Having a budget tracker isn’t just vanity—it’s a necessity! A budget tracker gives you an overview of your current spending habits.Try tracking your expenses for a month without changing any money habits. Once you’ve got a snapshot of how you manage your money, it would be easier to identify where you could cut corners and adjust. This will make you more conscious and responsible the next time you swipe your credit card on that terminal.
- Be a smart spender
Limiting your spending is another crucial tip in achieving your financial goals. The main thing to remember: If the purchase will support the future you’re trying to create, go ahead and make it. Otherwise, sleep on the purchase before heading for the checkout counter.
- Work on your credit score
Your credit score will prove to be invaluable as you create milestones, like buying a home. It gives you leverage in negotiating lower interest rates on succeeding credit cards or a loan that you want to apply for. Your credit score also reflects your money habits, so it serves as a mirror of your efforts in saving and attaining your financial goals, as well.
- Save, save, save
It begs to reiterate that saving is a crucial part of growing your money. As long as you know what you’re saving up for, it won’t be challenging to be motivated. This is why it’s important to set those goals—having them will allow you to properly budget and segment your income, so you know how much you need to deposit to your savings account regularly.
- Invest your money
Investing is an intimidating term for most people, but only because it involves the unknown. However, not all investment vehicles are the same. Some come with your life insurance policy, others require you to learn and check stock market statistics, while it can also be as straightforward as purchasing a real estate property.
Of course, each investment will have a different result or impact on you. For instance, if you’re working your first job, it won’t hurt to know investment ideas for young adults. There’s no such thing as too early when investing—learn all your options and try your hand in it. There are plenty of vehicles that can fit your risk profile, so you don’t have to worry about going all-in on your first time.
Some Examples of Financial Goals
No goal is too big or too small. Here are some goals you can include in your financial plan:
- Paying off your debt – Whether it’s a bank loan, the money you borrowed from your family or friend, or credit card statements, paying off all your debt is liberating. It’s also a sign of being financially in control.
- Building an emergency fund – Not all people diversify their assets. Some only have one or two bank accounts—one for income, and perhaps another for their savings. Your emergency fund should be separate from these two and amount to at least six months of your income to ensure that you’re cushioned from any untoward incidents such as loss of work, natural calamities, medical emergencies, etc.
- Owning a home – Whether you are aiming for a house and lot or a condo unit, having a place to call your own is a significant financial milestone.
- Starting a business – Creating a small business or founding a startup is a great feat! You need a lot of capital for business—and if all goes well, everything you’ve invested for it will come back to you tenfold.
- Saving for a vacation – Yes, even traveling can be a long-term financial goal—if that’s what you desire. This can be a solo trip or a goal to bring your family to see different parts of the world.
Summing It Up
Your financial goals are unique, personal, and highly customizable. It’s a lot to wrap your head around, but don’t feel discouraged. The hardest part is starting, but once you’ve done your work, you’re sure to reap the benefits of your efforts.
Don’t pressure yourself to achieve all your goals right away, as these things would really take time. Rather, cheer yourself on for every progress—that means you’re one step closer than you were before.
Chellsea is a freelance lifestyle writer for Metrodeal. She loves to travel and on her free time she enjoys watching football games.