Have you been thinking about trying to set financial goals for your family?
But maybe you are also thinking one or all of these things:
- I have no clue where to start or how to go about setting goals.
- I don’t even know what a realistic goal is for me at this point.
- What do I do once I set these goals?
If you are thinking any of the above things about how to set financial goals, then keep reading because I’m going to help you figure it all out.
I am going to help you set financial goals, give you ideas to help you develop a plan of action, and give you tips on how to stick to your plan!
You see, setting goals is a big part of what I do for my day job as an occupational therapist. I evaluate an individual, determine what their strengths and deficits are, and collaborate with the person to come up with realistic goals that are obtainable so they can transition back home with their loved ones.
So I have a bit of experience with setting goals, over 20 years to be exact. They might not be goals that are money related at my day job, but I use the same exact concept.
My goal writing framework is going to help you create appropriate and attainable financial goals so you can get control of your finances and live your best life!
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I just wanted to mention one thing before we get started. I am not including saving for retirement as a long-term goal as it relates to this blog post.
Yes, you do have to plan for retirement and set a retirement goal.
However, once you figure out your retirement savings goal, establish your plan, and arrange for contributions to your retirement accounts, you should pretty much be on autopilot (besides increasing your contributions as you are able) with working towards your retirement goal.
The “long-term” financial goals I am referring to in this post are goals that could be accomplished in anywhere between 2-10 years.
Your long-term goals will require you to monitor your progress over time by using your intermediate goals (or mini long-term goals, as I like to call them) to ensure you are staying on track for meeting your long-term goals.
There is a reason I prefer to set goals like that. And the reason is that it is so hard to stay motivated when working toward goals if there is no end in sight (or if it is many, many years down the road).
Using intermediate goals to work toward your long-term ultimate goal will help you stay super motivated because you will see and feel the successes sooner.
Okay, let’s get started and set financial goals.
Step 1: Brainstorm & set financial goals
Set your long-term goal first
The first thing you are going to do is brainstorm. Use the brainstorming and goal-setting worksheet I created to help you! I personally feel that working backward is the easiest. What I mean by that is to think about your long-term goal first.
Ask yourself, “What do I want to accomplish financially in 5 years (or 2, 3, 4, etc. years)?”
You are going to pick the number of years for your long-term goal based on what you want to accomplish. You want it to be realistic and obtainable in the amount of time you choose.
Some ideas on what you could base your long-term goals around are:
- I want to have all my credit cards paid off.
- I want to rid myself of student loans.
- I want to be debt free.
- I want to have a 20% down payment saved to buy a home.
- I want to have a year’s worth of expenses saved in an emergency fund.
Keep in mind your goal needs to be more specific than those examples. You want to have a set dollar amount and a time frame with your goal. Just make sure it is realistic and achievable.
For example, if you live in an area where the average home cost is $500,000 and you decide you want to save 20% down so you can buy a home in 5 years, you want to make sure it is realistic for you to save $100,000 in the designated time frame.
In other words, avoid setting yourself up for failure!
Spend some time crunching numbers before you decide on your long-term goal.
So using that same home-buying example, if you know you have an extra $750 every month to put toward your goal of buying a home, a more realistic goal might be to save 10% for a down payment ($750 a month x 12 months = $9000 per year x 5 years= $45000).
That is $5,000 short of meeting your goal of 10% down or $50,000. You can then figure out how you will come up with that extra $5000 (equivalent to finding an extra $1000 to save each year) to bring you to your 10% or $50,000 down payment goal.
Let’s take another example. Say your long-term goal is to pay off $30,000 of student loan debt in 4 years. You will need to pay off around $7500 of it each year (probably a bit more than that, depending on your interest rates, but let’s just say that’s what it is for simplicity’s sake).
You will have to pay around $625 per month to achieve this goal. If you don’t have that much per month to pay off your debt, you are going to have to modify your goal.
You could extend the goal time frame by a couple of years to bring that monthly payment down. Or you can get creative.
You could find a way to bring in more money each month and direct that money toward your debt, or you could find ways to cut costs every month to come up with the money you need to pay off your student loans.
So when you are writing your long-term goal (and all of your goals, for that matter), you have to be realistic about it.
Please don’t set yourself up for failure by making goals that aren’t achievable for you. It will only make you frustrated and could cause you to lose your motivation.
I would suggest working toward one long-term financial goal at a time, especially if it is rather large, like in the examples above.
Otherwise, you may get overwhelmed, which can throw you off track. When you reach that goal, you go through the same brainstorming and goal-creation process again for the next goal you want to achieve.
Intermediate Goals (Mini Long-Term Goals)
So after you figure out what your long-term goal is going to be, you need to come up with intermediate goals. Again, you don’t want to go overboard. I would suggest sticking to 2 goals that you could accomplish in 6 months to 2 years.
The point of these goals is to help you reach your long-term goal. You want to look at them like stepping stones down the path to your long-term goal. These two goals should be directly related to your long-term goal.
Let’s use our two examples from earlier to set some intermediate goals.
Long-term goal: I want to save $50,000, so I have a 10% down payment on a $500,000 home in 5 years (Keep in mind this is just an example…I do not usually advocate for only putting 10% down on the house, but that’s a whole other post).
Potential intermediate goals:
- I will save $12,000 towards my down payment in 18 months.
- I will have a total of $25,000 saved toward my down payment in 3 years.
If you want to, you could continue to set intermediate goals in this way until you have figured out your entire plan for meeting your long-term goal. However, I like only to set two goals at a time, and here is the reason.
Life happens! Things don’t always go as planned.
If your situation changes and you are no longer bringing in the money you thought you would, or if you get a promotion and you are now bringing in more than you were expecting, you wouldn’t have to go back and change every single goal.
You would just have to readjust those goals you set.
Let’s look at the second example.
Long-term goal: I want to pay off $30,000 in credit card debt in 4 years.
Possible intermediate goals:
- I will pay off $8,000 in credit card debt in 1 year.
- I will pay off $16,000 in credit card debt in 2 years.
As you can see, these are directly related to working towards your long-term goal. As I said earlier, this is important because these intermediate goals are going to keep you on track and motivated toward your big goal.
Once you reach these intermediate goals, you are going to write some new intermediate goals. Let’s say you achieve your 2-year goal of paying off $16,000 of credit card debt in only 18 months.
It’s time to celebrate!
Then you want to crunch more numbers to set some new realistic and obtainable intermediate goals to keep moving in the right direction.
Now let’s just say one year went by, and you did not reach your first intermediate goal. You are going to want to reassess your second intermediate goal to see if it is still realistic and attainable.
There are many reasons why your goal could become unattainable. A couple of reasons could be a decrease in hours at work, an unexpected medical expense, or a pandemic. If you crunch numbers and just don’t think you will be successful in obtaining your goal, you should rewrite the goal to make it attainable.
There are two reasons to rewrite your goals if they should become unachievable. The first reason is for your mental health so you do not get yourself stressed out about attempting to reach a goal that is actually out of your reach.
You do not need that extra stress on your shoulders, especially since it is avoidable by taking the pressure off of yourself and creating a second intermediate goal that is achievable.
The second reason is to get yourself back on the right track to achieving your goals. If you continue with your unachievable goal, you are setting yourself up for failure.
As I said before, try to avoid that! You can get yourself back on course by reevaluating your situation.
Maybe you won’t be as far along as you originally anticipated, but you could always try to make up that difference in your future intermediate goals.
Short term goals
Okay, now you have one long-term and two intermediate goals. It’s time for short-term goals. This is where it’s now time to get a little creative.
Your short-term goals do not have to relate to your long-term goal and your intermediate goals directly, but they should help you work toward achieving good overall financial health. This will, in turn, help you to achieve your intermediate goals and, eventually, your long-term goal.
Short-term goals should be achievable in up to one year. I wouldn’t suggest having any more than four short-term goals at a time. It could be overwhelming and cause frustration for you. If you reach them, then go ahead and set some new goals.
To decide on some short-term goals, you will want to assess your financial situation and think about some small changes you could make now that will benefit you in the long run.
Some examples of what you could make your short-term goals about are:
- Pay off a small bill
- Open a savings account and automate a recurring deposit
- Sign up for your employer 401K and begin depositing at least up to the company match
- Save on cable bills by calling the provider and asking for a cheaper package (or get rid of cable altogether)
- Decrease your monthly food expenses by meal planning
Again, you want your goals to be measurable and obtainable. So let’s just say you have a $150 medical bill you have been paying $15 per month on, and you just want it gone. Your goal could be to pay off this $150 medical bill in 3 months.
Now you should have your long-term goal, two intermediate goals directly related to your long-term goal, and a couple (no more than 4) short-term goals in mind. Go ahead and write them down.
You can use my printable goal writing worksheet to help you! It is free and will be sent to your email so you can download it and start using it today!
Step 2: Come up with a plan for reaching your goals
Developing your plan for reaching your goals is just as important as setting goals that are realistic and achievable. In order to reach your goals, you will have to take action. Goals do not get met by being a bystander.
The actions you take will depend on your goals. For example, will you need to bring in extra money every month to meet your savings goal? Or do you need to consolidate debt at a lower interest rate in order to get it paid off in the desired amount of time?
These are just some examples. You should look at your personal goals and think about what you can do to help yourself succeed in reaching your goals.
Here are some questions to ask yourself and possible answers to help you figure out a plan.
How am I going to come up with extra money every month?
- Cut back on expenses
- Get a part-time job
- Start a side hustle
- Use your income tax refund toward it
- Sell your stuff
- Start a no-spend challenge
- No-Spend Challenge Guide: Rules and Tips for Success
- Realistic Ways to Make an Extra $500 a Month
- 50 Ways to Make Extra Money So You Can Stop Living Paycheck to Paycheck
- Frugal Living: The Ultimate Beginner’s Guide
- 70+ Frugal Living Tips to Help You Spend Less Money
Here is an example from my life.
When we decided we wanted to move out of our tiny first home so we could start a family, I created a long-term goal of saving 20% for a down payment on a home that was more conducive to raising a family.
I wrote down how much money I wanted us to have saved for the next couple of years for my intermediate goals.
In order to achieve our yearly goals, we had to bring in quite a bit more money every month. Back then, I didn’t know what a side hustle even was, so I ended up getting a second job to bring in that extra money.
At the time, we didn’t have kids, so it wasn’t a big deal for me to go work at a second job after finishing up at my day job.
Nowadays, that would not work for us since we both have full-time jobs and two young children to take care of.
The point I am trying to make is you have to figure out what is going to work best for you. What you do to bring in extra money is going to depend on many things, like family commitments and your daily schedule.
Where and how are you going to deposit money (if the goal is to save)?
You will have to decide where you will stash that extra money if you have a goal to save up for something. You want to keep that money safe, which means not investing the money you will need in the near future in the stock market.
You will also need to decide if you want to automate the deposit or not. If you know you will have a certain amount of money every month to save toward your goal, you could automate your deposit.
However, if your extra money varies from month to month, you may want to set up a deposit each month.
When we were saving money for the down payment, I decided to open an online money market account to take advantage of a higher interest rate.
I didn’t automate my deposits since my income from my second job varied so much.
It would be a good idea for you to open a separate savings account for the money that you are saving for your long-term goal. By keeping it separate, you will decrease the likelihood that you will attempt to use it for something else!
Take a look at an Axos High Yield Savings Account if you are in need of opening a separate account.
Which debt will you target to repay first (if the goal is debt repayment)?
- Debt with the lowest balance: use the debt snowball method
- Debt with the highest interest rate: use the debt avalanche method
If your long-term goal involves paying down debt, you are going to want a game plan for how to tackle repaying it. There are different methods for repaying your debt. The two most popular are the debt snowball method and the debt avalanche method.
Debt Snowball Method
While you are paying the extra on the smallest debt, you continue to pay the minimum on all of your other debts.
If you think of how a snowball is made, it starts off small, builds up, and gets bigger as you keep rolling it. In debt repayment using this method, you would start with paying the smallest debt you have and pay the minimum, as well as any extra you can afford to pay on it.
After the smallest debt is paid off, you would take the total amount you were paying on the smallest and put all of that money toward the next smallest debt while you continue to pay the minimums on all the others.
You keep with this pattern until, finally, you are down to your last and largest debt, at which time you are paying way more than the minimum and will pay that off in no time!
Debt Avalanche Method
This is where you make a list of all your debts and their interest rates. You find the one with the highest interest rate and start paying the minimum, plus whatever else you can afford to pay on it.
At the same time, you are paying the minimum on all your other debts.
After you pay off the debt with the highest interest rate, you then take all the money you were paying on that, and you start paying on the debt with the second highest interest rate. Keep paying those minimums on all the others.
Again keep going in that pattern until everything is paid.
There is also something called the debt snowflake method. This method is best used in combination with one of the other methods.
It involves taking small amounts of money that become available to you and putting that money toward paying down your debt sooner.
So, for example, say you get a Rakuten check in the mail. Instead of cashing it and spending it on something, you would immediately use it toward whichever debt you are focusing on paying down at that time.
So which is better, the debt snowball method or the debt avalanche method? You will have to decide which method will be best for you.
Which method do you think will keep you the most focused and motivated toward reaching your goals?
The debt snowball method may keep you motivated and excited about paying down your debt because you will see and feel the successes sooner.
As you pay the smaller debts off, you will feel like you made a dent in your progress because that is one less bill you have coming in, which in turn will help you stay motivated and driven.
On the other hand, the debt avalanche method tackles the debts with the highest interest rates first, which will save you money in the long run because you will save some money on interest.
This can take longer to see and feel the successes during your journey because debts with higher interest rates can take longer to pay off.
Step 3: Take action and stick with it!
The third step in goal setting is taking action. You can create goals and come up with a plan, but if you don’t take action and make changes to your current financial situation, it will be difficult to reach those goals!
Here are some ways to stay motivated and stick to your action plan:
- Work together with your spouse or partner. Have weekly or monthly meetings to talk about your progress toward your goals and decide on changes together.
- Keep a visual aid of your progress. Whether it be a spreadsheet or a printable that you can color or fill in as you meet your smaller goals, keeping a visual aid that you can look at often will help you stay motivated.
- Don’t deprive yourself. It is important to enjoy life as you are living it. Find ways to experience joy and happiness as you work toward your goals.
- Keep a positive money mindset. By staying positive even when times are tough, you can help yourself get back on track toward reaching your goals.
- Be kind to yourself. Everyone makes mistakes; it is human nature. No one is perfect. If you find that you have made a money mistake, figure out what went wrong, learn from it, correct it, and move on.
- Celebrate the small successes! This will help you stay motivated and will help you realize how far you have gotten with all your hard work and efforts.
So whether your goal is to pay off your debt or to save for an awesome family vacation, start working on your plan and stick with it! If your plan should become derailed, make the needed revisions, and get yourself back on track.
Most importantly, keep a positive mindset! With some perseverance and hard work, you will reach your goals!
To have my free goal writing worksheets sent directly to your email, click here.
What are your financial goals? Do you have a plan for achieving those goals? Please leave me a comment and let me know!