If you read last week’s post about financial resolutions, then you know that one of the most important ones is to set your goals. For many, this can be difficult because most of us have multiple financial goals in life. Some common ones I see are retirement, buying a house and paying down debt. It can be tough to figure out what is most important and where to spend your money. However, goal priority can help simplify your decision. I’m going to break down the basic steps of goal setting because simply saying “I want to have a million dollars” is a pretty weak goal. I don’t know what purpose this money has or when you want to have it so we need to get into specifics. Start by downloading my Goals Worksheet from Downloads page to help guide you through this process.
How to Set Goals
- Identify your goals
List out anything you consider to be a financial goal. Some common ones include:
- Save for retirement
- Buy a house
- Start a business
- Save for a child’s education
- Pay off credit card debt
- Pay off student loans
- Quantify your goals by time and value.
For each goal, go through and figure out when you want to achieve it and how much it will cost. Here are two examples:If you listed “Buy a home” as a goal, you could say you want to do it within 3 years and the home value is $500,000. And you can get more specific with how much you will put down, what closing costs are and factor in furnishings.
If you listed “Pay off student loans” as a goal, you need to gather all your loan information and figure out how much you owe on each one and when they need to be paid off by.
- Prioritize your goals
Number your goals from the most important to the least important. This is where you have to be honest and realistic. You may want to save for your child’s education but if you want to buy that house in three years, the child’s education savings may have to wait.
The Goals Worksheet can help guide you through this process of setting goals. By laying everything out on paper, you can see what matters most to you. It will also help you determine where to save your money. It may involve some sacrifice, but if you are honest with yourself during this exercise, then you will be happier with your financial goals in the long run.