When it comes to personal finance, everyone’s situation is unique. No one has the same bills, rent, debts, or lifestyle. When you’re ready to take control of your financial lifestyle, you need a plan that will answer your specific problems, not your neighbor’s.
At credit.org, our trained coaches are ready to review your unique situation and help you plan your path to financial freedom. The first step to tackling these problems is to define your financial goals.
What Is a Financial Goal?
A financial goal is a target to aim for when managing your money. It can involve saving, spending, earning or even investing.
Creating a list of financial goals is vital to creating a budget. When you have a clear picture of what you’re aiming for, working towards your target is easy. That means that your goals should be measurable, specific and time oriented.
Types of Financial Goals
There are several types of financial goals:
- Short-term goals
- Mid-term goals
- Long-term goals
Short term financial goals
These are smaller financial targets that can be reached within a year. This includes things like a new television, computer, or family vacation.
Mid-term financial goals
Typically, midterm goals take about five years to achieve. A little more expensive than an everyday goal, they are still achievable with discipline and hard work. Paying off a credit card balance, a loan or saving for a down payment on a car are all mid-term goals.
Long-term financial goals
This type of goal usually takes much more than 5 years to achieve. Some examples of long term goals are saving for a college education or a new home.
7 Examples of Personal Finance Goals
Still not sure what to aim for? Here are some personal financial goal examples to help get you started.
1. Start an Emergency Fund
Life is unpredictable, and it’s important to be prepared. Saving for emergencies is one of the only goals that is a necessity. It should be the first one you should set, regardless of your situation.
It’s up to you to decide what qualifies as an emergency. There are a lot of different situations that can fall into this category, including:
- Medical expenses
- Job loss
- Broken appliances
- Car repair
When something unexpected and expensive occurs, emergency funds are there to keep you from suffering the financial blow.
How much you save toward an emergency will vary. Statistically, it takes 9 months on average to find a new job after a layoff. With this in mind, it is in your best interest to save roughly 9 months’ worth of income for emergencies.
2. Pay Off Debt
Paying off debts is one of the most common financial goals. No one feels comfortable knowing that they owe large sums of money. And because the amount you owe is already a specific number, paying off debt can easily be translated into a financial goal.
In addition to making every monthly payment, the best way to make real progress is to stop borrowing. Adding to your debt will only push you away from your goal, so it’s important to stay strong and diligent. In some cases, this goal is probably a mid-term goal, but there are ways to get out of debt fast.
3. Save for Retirement
Saving for retirement is a goal you may be working towards your entire life. It is the perfect example of a long term investment.
It is important to consider exactly what your retirement needs are. Setting up a 401(k) or another retirement plan is the most lucrative way to save for your future. Remember, the earlier you start, the better off you’ll be in the end.
4. Strive for Homeownership
Buying a home is a common long-term financial goal. Whether you’re saving for a down payment or working to pay off a mortgage, homeownership is one of the largest financial targets to aim for.
Saving up a sizeable down payment is the best way to get a reasonable home loan. And if you save enough, you can avoid the cost of Private Mortgage Insurance, which will save you even more money.
5. Pay Off the Car
Having a monthly car payment is not a staple in life. A great example of a mid-term goal is paying off a car loan. Somewhat sizable, paying off the balance should only take a few years.
Once you’ve completed paying off your auto loan, don’t run straight back to the dealership. It’s a signal that you should use those loan payments for other bills or savings. You’ve already finished one debt – there’s no reason to hop into another loan right away. It’s important to know the best time to sell or trade in your car to make the most of your investment.
Instead, continue to drive your old car until you have a sizable down payment for the next one. Make it your goal to pay for your next car in full, without borrowing at all.
6. Invest in a College Education
Unfortunately, due to the increasing cost of college, paying off student loans has become a modern long-term goal. Whether you’re a student paying off your own balance or a parent saving for your child’s education, college tuition is easily a substantial goal to base your budget on.
7. Plan for Fun
While most financial goals are oriented around being responsible, you should always try to aim for one “fun” goal. This could be a vacation, a big-screen TV, a boat or any other unnecessary thing that you simply want.
If you work hard and save diligently, you deserve to reward yourself with fun savings goals. Plus, working towards something you truly want is a great way to practice self-discipline and goal setting.