Step 1: Establish Goals
Identifying clear, achievable goals is a crucial part of anyone’s financial plan. A financial goal is the exact amount of money needed for a specific purchase or service at a definite date. Making the goal precise helps you determine how much you need to set aside each month and track your progress.
There are three types of goals: short-range, mid-range, and long-range. Short-range goals are to be met in one year or less, mid-range in one to five years, and long-range in five years or more. Vacations, gifts, and electronics are typical short-range goals. A down payment for a house is a common mid-range goal. Long-range goals may include saving for retirement and a child’s higher education.
The Financial Goals Worksheet can help you determine the timeline for your goals and the amount of money you’ll need to regularly set aside in order to reach them. You may find the numbers daunting or even not realistic based on your current financial situation. (Completing Steps 2 and 3 can help you determine how realistic your goals are.) You may be able to increase your income and/or decrease your expenses or have to consider adjusting your goals. Determining your priorities is essential. If you share your finances with someone else, discuss and set priorities together. It is not uncommon for couples to work at cross-purposes financially without even knowing it. By communicating with each other and determining what’s most important, it will be much easier to reach your goals.