Setting financial goals isn’t a whole lot different from other life goals. If you want to lose 20 pounds, for example, you might join a gym or plan healthier meals. If you’re struggling with a particular course in school, you may commit to studying harder or even get a tutor. You do this because you know that results don’t magically materialize—you need to do some work to achieve them. This applies to money management, too. The more planning and effort you put in, the better the results will be and the better you will feel about them, because, hey, you earned it!
Step 1: Be S.M.A.R.T.
Defining your financial goals is the first step—and you want them to be SMART; that is, Specific, Measurable, Attainable, Realistic and Time-Based.
Instead of just thinking, “I want to save more money,” get specific with your goal, such as, “I want to save 10% of my income.” By setting a specific and measurable goal, you will be able to determine whether or not you actually achieve it. (Plus, you’ll be able to see your money grow as it is deposited weekly into your savings account, which helps keep you motivated and on track.)
Choosing budgeting goals that are attainable and realistic are important to ensure your success. Sure, you can say you’d like to be a millionaire by next fall, but how are you going to get there? You want to know that you can implement the plan you create. And the great thing about time-based goals is that they provide you with a clear deadline. Instead of planning to save $2,000 for a vacation, your goal could be to save $150 from each paycheck in order to afford a vacation in six months’ time.
Step 2: Define Your Short and Long-term Goals
Now that you’ve got a goal in mind, it can be helpful to identify it as a short-term, intermediate, or long-term goal.
Short-term goals are generally objectives to be completed in a year or less. For example, to be sure that you have enough saved for annual payments, like property taxes or income taxes, estimate how much the annual cost will be, then divide that amount by twelve (twelve months in a year). Whatever that amount ends up being, set up a savings plan where you know that amount is going into a savings account every month, whether you decide to set up automatic deposits or you manually do it yourself. You want to know that the money will be there when the expense is due to avoid relying on credit and/or going further into debt.
An intermediate goal is a plan that you aim to achieve within one to five years. Perhaps you’d like to save for a down payment on a home; knowing how far ahead in the future your home purchase will be can help you get there.
Long-term goals are generally five, ten or even more years away. These goals may include saving for your child’s education or your own retirement. The earlier you start implementing a plan for long-term goals, the more your savings will grow. A Registered Retirement Savings Plan (RRSP) is a good start for anyone because your invested money is compounded over time.
Step 3: Needs vs Wants
Finally, consider the idea of needs versus wants when it comes to prioritizing your goals. Today, the average debt for Canadians is over $22,000. So if we want that shiny sports car or flashy diamond ring, we’ve got to plan for it. And, once you’ve got a plan in place for your bills and other responsibilities, you can begin to think about these sort of extravagances. That’s what financial goal-setting is for! So grab a pen, a calculator, and let the planning begin.
If you’re still struggling to make ends meet, and your goals feel unattainable, we can help. Credit Canada offers free counselling in order to help you live a debt-free life. Contact us today and let us help you reach your goals.