Arbitrary spending of money has countless adverse effects. Spending money without planning leads to funds shortages in emergencies or unexpected situations. The never-ending credit card debts and piling up loans make things worse. As a result, there is never enough money to invest in a secure future, such as life insurance or retirement age, and the vicious cycle continues. The only way to prevent being sucked up in this whirlpool is to take the steps today and set financial goals.
Financial goals are plans that individuals or organizations have for their funds. Setting these goals can save money and improve the financial health of companies. As a result, they prevent over or underspending. Realistic goals with set target dates are great for investing in necessities and savoring luxuries. This article outlines and explains easy and practical ways of financial goal planning and tips to stick to them.
1. Sit With Your Thoughts
When setting financial goals, it is imperative to understand the intentions and thoughts behind them. Setting a goal is easy, but following it or sticking to it is another thing. Financial goals that stem from competition or unrealistic expectations are unfulfilled or leave you unhappy.
For successful financial goal planning, it is essential to have the answers to “why” and “what.” Organizations should plan and analyze what they are investing in or saving for. They should also be mindful of the benefits it will bring to the business.
Competitiveness works well for businesses as long as it does not create unnecessary or far-fetched plans. It motivates them to develop new products, improve customer service, and more. However, answering important questions and having discussions are still crucial.
Suppose you want to save money to afford the multi-million dollar vacation your friend enjoyed. In that case, you will enter a never-ending loop of discontentment. Something bigger will always pop up, and you will keep switching your goals from a vacation to a new phone, a new house, a car, and so on.
Therefore, clarity on the reasons and potential benefits of setting financial goals is essential. It is vital to have answers to the “why” and “what” that resonate with your inner desires or motivations.
2. Write and Narrate Your Goals
Writing goals is like etching them in stone. Doing so makes them easy to remember and connect to regularly. A study revealed that individuals who write their goals down are 42% more likely to achieve them. The secret is that writing things down makes them a part of our brain’s long-term memory, also known as “encoding.”
In corporate setups, financial goals matter the most. They are the steering wheel that will drive the industry forward or backward. Finance departments meticulously chalk out their yearly financial goals and review them regularly. Periodic meetings and updates help them stay connected to their plans and review their progress. Startups need financial goal planning even more so they cannot go wrong with their finances.
It is best to write your common financial goals down in a journal or notebook that you carry with you everywhere. Keep your goals on the first page, so you see them whenever you open the journal. The good idea is to have notes in your wallet, purse, or wherever you keep the cash. Goals written on these notes are a soft reminder of whether the expense aligns with your goals.
Positive affirmations are an excellent way to set and achieve goals. Writing goals makes them easy to access, and narrating them refreshes them. Repeating your goals and telling yourself what to do positively affects fulfilling them.
3. Have Specific Goals
It is necessary to set specific financial goals. Vague goals are challenging to develop, keep, and achieve. They have higher chances of misinterpretation and frequent deviations. Specific goals have a precise aim and are achievable in a time frame.
Clear and specific financial goals allow employees to focus on and achieve objectives without wavering. Unclear goals are difficult to interpret and even more challenging to monitor. Even goals like reducing costs or increasing sales could be more specific. By attributing a set percentage of cost reduction in the prescribed time, the goal becomes straightforward and thus achievable. Organizations follow the Objective Key Results (OKR) framework to set their goals where they have specific objectives and clear key results to measure progress.
An excellent way to have specific goals is through the backward goals method, which involves thinking in reverse about actions that drive others. For example, your financial plan is to have a specific amount for a long-due renovation by the end of the month. To have enough, you must save money. To do so, you need to reduce your expenses by 10%. You can manage your costs by making a budget. Therefore, your specific goal is budgeting, which reduces your costs by 10% at the end of the month.
4. Set Deadlines
Time-bound goals are the best way to create motivation for completing set targets. They reduce the chances of procrastination and make sure you stay on track with your progress. The research concluded that setting deadlines help people achieve their goals and reduces laying them off.
Realistic target dates for financial goals provide the push to work towards them. Therefore, setting challenging yet achievable target dates for your financial goals is essential. For example, a financial goal of achieving double sales in a month is an impractical deadline that can leave employees and all relevant departments exhausted yet unsuccessful.
In daily life, time-binding even the smallest of tasks gets them done. The same applies to our financial goals. Confining our goals in the limitations of time creates the motivation to get things done and puts our life in order.
5. Create Short-term and Long-term Goals
There are two types of financial goals: short-term goals and long-term goals. Short-term goals stretch from a month to over a year. Midterm financial goals extend from five to ten years, while long-term goals aim at ten years or more. Creating budgets, paying off credit card debt, and saving money are all short-term, yearly goals. Long-term financial goals are investing in a retirement fund, education plan for children, or even business expansion.
The most intelligent way to handle finances is to have short-term and long-term use for them. It is essential to foresee life decades ahead and expect how much money will maintain a comfortable life. It is also imperative to put finances to good use through short-term financial goals and prevent imbalance.
In financial goal planning, short-term goals usually have money as the determining factor. For instance, an increased profit margin within a year is a short-term plan for an enterprise. Expanding business to another city is a long-term plan which does not directly depend on money. However, it needs better profits and more revenues.
6. Divide Your Goals
The Tiered Goals, BSQ Goals, and micro-goals methods are all frameworks for splitting bigger goals into smaller ones. As the name suggests, Tiered Goals divide annual, quarterly, or monthly goals based on their timeline. Categorizing goals according to their timeline makes them short- or long-term goals.
The BSQ Goals are to “think big, act small, and move quick.” You set yourself a big goal, divide it into smaller actions, and act upon them in a set time frame to achieve them quickly. Micro-goals are like BSQ Goals and work by dividing bigger goals into smaller ones.
Dividing financial goals into segments makes it easy to follow and complete. It also manages focus and prioritizes tasks as per their need or urgency. As a result, you can save time and money and fulfill all your obligations effectively.
7. Create Budgets
One of the most important ways to set financial goals is to create a budget that aligns with your goals. A budget helps you create a foreseen plan of where your money will go soon. It is a beneficial practice that can save time and money better than any other financial planning strategy.
Creating a budget is the most common financial goal, and for a good reason. Budgeting gives you control over your finances and helps track their flow. It prevents over or under-spending and keeps a check on the minute expenditures that amount to considerable expenses at month-end.
A typical domestic budget divides total expenses into segments. First, the necessities include groceries, bills, and rent. They also have fees for child education. The second segment is the emergencies, such as an unforeseen accident or a relative in dire need. The third segment is savings. Ideally, there should be a fourth segment, which includes the investment in a plan that covers the retirement age or life insurance.
Necessary as budgeting is, it can be a tedious process, especially for companies where enormous sums of money are involved. However, setting financial goals has become very easy, thanks to financial goal planning software. These software help create and maintain yearly financial goals by setting a budget, tracking expenses, and managing cash flow. They also link to your bank account and spreadsheets to ensure no transactions go unchecked.
8. Get Rid of Credit Card Debt
Relieving oneself from piling credit card debt is essential to facilitate financial goals. As long as credit card debts are waiting to be cleared, creating and completing these goals is a case of one step forward, two steps back. The ever-increasing interest rates on debts nullify any progress toward saving money or managing expenses. Alarmingly, credit card debts in the United States have increased by 40 million US dollars in 2022 as compared to 2021.
However, even if debts are to be paid, it is still essential to continue investing in a retirement or insurance plan.
Credit card debt is paid in two ways: the debt avalanche and the debt snowball. In the debt avalanche method, debt payment begins by first paying off the debts with the highest interest rates. In the debt snowball method, debt payment begins by paying off debts of the least amount, regardless of their interest rate. Both ways work well. Pick the one that suits you or your organization best.
9. Anticipate the Old Age
It is easy to get carried away in the present and desires and overlook old age. Several people neglect retirement plans or life insurance because they either cannot or will not invest in one but end up struggling when life happens.
When setting financial goals, you must include retirement age in your plans. Make sure you invest in a retirement fund and save money for it. Certain companies offer retirement plans for their employees. Those who do not have this benefit at their workplace can invest in an individual retirement plan.
According to a study in the US, 69 percent of respondents have their retirement finances all planned out, which is a satisfactory number. However, ideally, this number should increase.
The same is for life insurance. Therefore, it is advisable to continue allocating money to life insurance, even if you are already struggling financially. However, these plans and insurances come to the rescue in worst-case scenarios.
10. Let Technology Assist
Some people find it better to write their common financial goals in their journals, on sticky notes, or where they can regularly see them. However, a majority now prefers mobile applications for the same purpose. These financial goal applications are readily available everywhere and easily accessible.
The conventional method of writing goals may consume time in creating plans and roadmaps. Financial planning applications speed up the process. They automate the process and make it sophisticated by linking excel sheets and accounts so you have your goals right before you. They also track cash flow, keep checks on expenses, and create specialized balance sheets.
Financial planning software benefits new enterprises that struggle to manage their finances. Such software improves financial health by helping set yearly financial goals, save money, and kick-start an enterprise.
11. Create a Reward System
Rewards are the catalysts that motivate one to work consistently toward the goal. The encouragement from a completed milestone enables individuals to continue their efforts and dedicate themselves to working harder and better. In addition, rewards and incentives evoke interest in initiating and completing tasks.
Reward systems to achieve financial goals work best in organizations. Some incentives encouraging employees to work tirelessly towards a common goal are appraisal, promotions, pay raises, bonuses, events, and company-sponsored vacations.
Creating a reward system for personal financial goal planning is also crucial. For example, treating yourself with a treat or dinner is an anti-stress therapy. It motivates you to continue intelligent financial allocation.
Setting financial goals is essential to save money intelligently. By setting financial goals, individuals and organizations can have better control over their expenses, track cash flow, prioritize plans for the future, and overall better financial health. Goals are divided into short-term financial goals and long-term ones. Regardless of their time frame or type, it is vital to stick to set goals and review progress regularly.
New and interactive software such as Financli has immensely eased creating and maintaining financial goals. Our diverse financial planning software enables everyone to successfully set and complete their financial plans for a secure future.