Money is not the root of all evil; it’s a tool that you can deftly use in this temptation-filled, consumerist world. Without sacrificing your needs and indulging in life’s niceties every now and then, you clearly have control over your finances. To put things in perspective and easier for you to pinpoint, e.g. how much to save vs how much to spend, you set financial goals.
When talking about financial goals, it’s not enough to say you want to get rich, you have to make it clearer like being a millionaire by 30 or in less than five years.
Financial Goals 101
These financial goals represent your dreams for the near and far out in the future, only clearer and more specific, concrete and measurable, grand and realistic, and working within and against time.
A financial goal can be short-term that is achievable in three months to a year, or medium-term that spans two years or so, or takes many years culminating into a debt-free retirement.
1. Netting (and Increasing) Your Worth
Before anything else, you need to know your current financial status. Take the difference between your cash including savings and debts. This is your net worth and it’s something you can increase like Bill Gates’s. At this point, ready your budgeting skills.
2. Living Within a Budget
Using a fintech app or your good old notepad and pen, tally your total monthly expenses and subtract them from your total monthly income. The difference should ideally be savings, going toward your bank account or your piggy bank hid safely elsewhere. You can surely lessen your expenses, consume less junk food, cut the frequent trips to the mall, or pull the plug on the cable perhaps. Do stick with your budget.
3. Setting Up an Emergency Fund
An important use of your savings is an emergency fund. This is pretty handy when life slaps you with an unexpected car repair bill, an emergency medical crisis or a job loss. To be safe, set aside at least three to six months’ worth of living expenses in that emergency fund.
4. Repaying Debt
Imagine the money draining out of your pockets and into your interest payments every month. Getting rid of debt is almost a default goal and how to repay them in a timely manner is in order. There are many ways to eliminate debts, the debt avalanche and debt snowball being two of the most popular methods. Why debate over the two when you can combine both. Start with your high-interest credit cards.
5. Taking on Debt
While buying in cash is the way to go to reduce the chances of being knee-deep in debt, financing like mortgages requires a history of taking on similar credit to show how responsible you are as a borrower. This doesn’t mean taking on a new debt to get another one, it just means prudently opening accounts to establish a credit history for those financing needs in the future.
6. Planning Your Retirement
Your emergency fund will tide you over for a few months, your retirement nest egg will carry you through your retirement years in a hammock, ideally. Living on pension will not suffice if you think of rising medical costs and living expenses. Take advantage of your 401(k) and start building your retirement nest egg.
This, my friends, makes a good starting point in any financial goal setting. All your spending and saving would make sense if you know where they will lead, hopefully to a brighter and more secure future. Have you identified your financial goals?
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.