Fine Tuning Your Financial Goals
Setting financial goals is important, but it’s also essential to make sure they’re realistic. This means you can’t set up a goal that’s going to take years or decades to achieve and then become discouraged when it doesn’t happen right away. Instead of setting yourself up for failure—and potentially losing confidence in your ability to achieve your goals—try setting smaller milestones along the way. Not only will this make it easier for you to assess progress overall, but it’ll also ensure that failure isn’t an option!
Start with jotting down dreams and visions.
Think big. This should start off with an overall broad view. For example, do you want to start your own business? Do you want to save for your retirement? Have you considered how much you need to retire? What about college for kids? Any other goals like retiring in the Grand Cayman Islands? This is up to you to determine.
Think about your risk tolerance.
● Risk tolerance is your willingness to take on risk in order to achieve a certain return.
● If you are more risk tolerant, you can invest in higher growth assets such as stocks and real estate.
● If you are less risk tolerant, you can invest in lower growth assets like bonds and cash investments.
Create a savings plan.
To make sure your finances are in good order, make a plan to save. You should first create a budget and determine how much money you can afford to save each month. Then divide the amount by 4-5 weeks, and write down how much needs to be saved on a weekly basis. The reason for this step is that it will help discipline the saver to determine how much they spend on a weekly basis, and any choices that might need to be made to achieve your financial goals.
The next step is deciding when and where you want to save. There are four main categories of savings: retirement, emergencies, savings and brokerages, and children’s education. The goal is that no matter what happens with our life circumstances, these goals will always be met without having to worry about making ends meet again as soon as possible because all income has been accounted for at every stage of life – even after retirement!
Create an emergency fund for yourself.
The first step to creating an emergency fund is understanding what it is and why you need one. An emergency fund is a savings account specifically set aside for unexpected expenses like medical bills, home repairs, and car repairs. Having this cash on hand will help you avoid having to take out a high-interest loan or use credit cards when unexpected expenses arise. The amount of money in your emergency fund should be enough to cover at least three months’ worth of expenses. For example, if your monthly rent is $1,200 and your monthly expenses total $2,000 per month (including food, transportation, and entertainment), you should have at least $6,000 – $10,000 saved up in an emergency fund before adding anything else to your financial plan. If you don’t already have an emergency fund started yet you will want one even if that would mean sacrificing nonessential purchases for a while until you save up the necessary amount—that’s okay!
Focus on paying off toxic debt.
Paying off debt is the fastest way to put your finances in order and save money. If you have several debts, one approach that typically motivates individuals is to pay off the smallest one first, then move on to the next largest. This will help you to build momentum and keep your motivation up! Another strategy is to pay off the highest interest-bearing debt. In fact, depending on your situation, you may mix-and-match strategies for paying off debt.
List your purchases.
One of the best ways to get a handle on your spending is to list all of your purchases. This can be done on an Excel spreadsheet, or by using an app like Mint or You Need a Budget (YNAB). Start with going through each category and listing all of your expenses. Once that’s done, prioritize them in order of importance—not cost. For example: if you have $200 budgeted for food but spend $300 on eating out at restaurants every month, maybe it’s time to rethink that quota! Make sure you’re prioritizing based on what matters most instead of just sticking with the same amount from month to month because it’s what people tell you is okay.
If this sounds like too much work for now, start small by creating a list of things that matter most but don’t have their own categories yet (e.g., groceries), then add those items into other categories as needed until everything is accounted for (e.g., alcohol).
Review life insurance coverage and estate documents.
Life insurance is a financial tool that can help protect your family in the event of your death.
Life insurance provides money to your surviving loved ones to help with funeral costs and other financial obligations. It can also be used as an estate planning tool to pay off debts, provide for children’s education and more.
When it comes to estate and asset protection, the idea is to start now. The alternative is waiting too long. Estate planning and necessary documents include Wills, Trusts, Gifts of property to others, Medical Power of Attorney & Healthcare Directives, Durable Power of Attorney, and more. They are all essential documents and should be considered in your overall financial plan. Just like estate planning and documents, the types of insurance that can be bought today vary. Insurance can include Auto Insurance, Homeowners Insurance, Life Insurance, Business & Personal Liability and Umbrella Policies.
Invest in retirement accounts like a 401(k) and a Roth IRA.
● How much to save: You should be saving at least 10% of your income, but ideally more. If you’re not contributing enough, consider bumping up your contributions by 1-2% per year until you hit the sweet spot.
● How often to invest: The best time for investing is every month on the same day. This will help keep you from forgetting and skipping months (which happens more often than you’d think), as well as avoiding any temptation to time the stock market. Discipline and consistency is key.
● What to invest in: Stocks, bonds and mutual funds are all good options for retirement accounts like a 401(k) or Roth IRA because they have different risk levels that match up with your personal preferences and needs. For example, if one account is losing value because there’s too much risk involved then consider shifting some money over into another type of retirement account before things get worse!
Goals are meant to be achieved, so set goals that can be achieved.
As you set your financial goals, remember that it’s important to keep them realistic. This is especially true if you’re a beginner or haven’t set up any kind of savings plan in the past. When deciding on goals, ask yourself:
● Are they specific? (i.e., “I want to save $2,000,000 by 67 so that I can retire and live my desired lifestyle” rather than “I want to save more money for retirement.”)
● Are they measurable? (i.e., “I would like to save $10,000 annually for my daughter’s college in 10 years” instead of “I would like to save enough for my daughter’s college expenses.”)
● Are they achievable in the time frame given? (i.e., “I’d like to buy my own house before I turn 30 years old.”)
Additionally, make sure your goals are time-bound so that you know exactly when you plan on achieving them and how much effort it will take until then!
Goals can be tough to achieve. It’s hard to know where to start, and it’s even harder when you don’t know what your end goal should be. That’s why planning is so important—it will help you figure out what steps you need to take toward achieving those goals by breaking things down into manageable pieces. So go ahead: Start setting some financial goals today!
Take the next step
Contact our firm if you have any questions! We help clients create and manage financial goals, as well as work even further beyond just finances with our clients. We can listen to you, and help you craft unique financial goals for your specific situation. Set up a call today!
Matt Ward, CFP®