Back-to-school season is upon us once again. It’s time to prepare the family for success in a new school year, but it’s also time to prepare yourself—starting with your finances. They are the foundation for today and tomorrow! Setting yourself up for success includes making a list of goals and establishing good habits as early as possible.
Why Is It Important to Set Financial Goals?
Setting financial goals offers an array of benefits. Here are five of them.
1. Clear goals pave the way for a clear plan.
When you set short- and long-term financial goals, it enables you to establish a financial plan. Without those goals, how can you establish a plan and know where you’re going?
Think of it this way: An Olympic swimmer dreams of winning a gold medal (or medals). But unless that swimmer sets goals—reaching personal best swimming times, for instance—they’ll simply be treading water.
Keep in mind that a financial plan puts you on the path toward decreasing or eliminating financial stress. And we could all use a little less stress in our lives.
2. Goals enable you to monitor your progress.
Once you set financial goals, you can track the progress you’re making toward accomplishments like setting aside money for retirement and paying off debt. When you achieve one goal, such as contributing a set amount each month to an IRA, you gain motivation to reach other goals.
3. Goals allow you to establish priorities.
Listing your financial goals helps you prioritize each goal. For instance, building your retirement savings may be a bigger priority than buying a vacation home. Knowing which goals are most important lets you put the most energy possible toward your top-ranked goals.
4. Clear-cut goals keep you accountable.
If your financial goals are less defined, you’re less likely to tackle them. Let’s say you’ve decided to “save more money for retirement.” That’s a good start. But what does that mean? Instead, you should establish a concrete goal like “Increase my retirement savings by 10% a month by boosting contributions to my IRA starting on September 1.” Specific goals bring accountability to your overall financial plan.
5. Achieving goals provides something to celebrate.
When you’re able to scratch a financial goal off your list, you can celebrate the victory and feel good about what you’ve accomplished—and celebrations provide further motivation to achieve the remaining financial goals on your list.
What Are Some Financial Goals You Could Try to Achieve?
Each person must set financial goals that match their individual situation. In other words, financial goals aren’t a one-size-fits-all proposition. Still, several financial goals should be considered by everyone.
1. Start an emergency fund.
An emergency fund can provide a financial cushion if you encounter an unexpected situation, such as a job loss or a car accident. As a rule of thumb, experts recommend that your emergency fund contain enough money to cover at least three to six months’ worth of household expenses.
An emergency fund is just one component of a healthy strategy for financial wellness.
2. Get out of debt.
If you’ve accumulated too much debt, it can prevent you from achieving your financial goals, such as saving money for retirement, paying for college, or buying a vacation home. This is especially true if you’re dealing with high-interest debt, which can stretch out how long it takes to pay off what you owe.
To take on your debt, you might consider attacking the highest-interest debt first (while still making regular payments on other debts), followed by your next-highest-interest debt and so forth. This is one way to create a framework for a debt reduction plan. Also, you might look at funneling extra money you get (such as a tax refund) toward paying off debt.
3. Save for retirement.
Chances are, you already have some sort of retirement plan, like a 401(k) or an IRA. But are you putting enough money toward retirement?
A study released in 2021 by professional services firm PwC found that one fourth of American adults have no retirement savings at all, and those who do have retirement savings often don’t have enough. If that sounds like you, then it’s time to:
- Assess how much money you’ll need to retire comfortably. One rule of thumb suggests that you will need 80% of your pre-retirement income to maintain your current lifestyle once you retire.
- Examine whether you’re maxing out annual contributions to your retirement accounts.
- Look into ways to use alternative assets, such as a self-directed precious metals IRA, that can help diversify your portfolio.
How to Start Good Financial Habits
Aside from setting financial goals, what else can you do to practice good financial habits? Here are four recommendations.
- Educate yourself. Keeping up to date about how to achieve success with your financial plan is critical. For instance, you can gauge your own retirement scenario by taking U.S. Money Reserve’s free Retirement Quiz.
- Create a household budget. A household budget provides an overview of your monthly income and expenses and can put you on a smoother path toward achieving your financial goals.
- Track your spending. You may discover expenditures that you can cut to free up money for reaching your financial goals.
- Pay all of your bills on time. This can prevent you from being hit with late fees and from getting behind on bills. To keep on top of bill payments, consider activating autopay features for your bank, credit card, and utility accounts.
It’s okay to go back to the drawing board with your financial goals. Turn over a new leaf this fall and set financial goals you want to work to achieve. Get started with something small, like taking the U.S. Money Reserve Retirement Quiz.