How to set financial goals in 5 steps

Financial planning

You may find setting financial goals to be challenging for a number of reasons.

  • You create unrealistic expectations.
  • You don’t account for everything you actually spend in a given month.
  • You aren’t motivated to work toward a goal because you haven’t thought about why you wanted it in the first place.

Setting and working toward financial goals becomes easier when you reflect on your intentions, get focused, and realize that a goal is only as good as your plan. “It’s so important to put together a clear roadmap for how to achieve your goals,” says Alex Jensen, vice president and wealth planner for U.S. Bank Wealth Management.

Setting and working toward financial goals becomes easier when you reflect on your intentions, get focused, and realize that a goal is only as good as your plan.

These five steps can help you set and work toward your financial goals with confidence.

1. Take care of the basics

Before you create your list of financial goals, make sure you have some basics covered first.

  • Create an emergency fund. It’s important to have an emergency fund in place for just-in-case scenarios, like losing your job or having to pay for an unexpected medical expense. “A general benchmark is having enough to cover 3-6 months of non-discretionary expenses,” Jensen says.
  • Pay off debt. If you have outstanding high-interest debt, such as credit cards, pay that off before saving for long-term goals.
  • Save for retirement. Putting aside money for retirement should be on everyone’s goal list, and the earlier you begin, the more you’ll be able to save. Start by taking advantage of an employer-sponsored 401(k) plan, if you have access to one, since many employers match contributions up to a certain point.

Having these three financial basics in place will give you a more solid — and realistic — foundation to build upon when pursuing your other goals.

2. List and prioritize your financial goals

It’s time to think big. Start by brainstorming what your financial goals are, including short-term financial goals, like saving for a vacation, and long-term financial goals, like paying for a child’s education. Be as specific as you can, and don’t be afraid to think big-picture.

Next, prioritize your list. Jensen walks clients through this process regularly, helping them rank which goals are most important to them. “I give each client a deck of cards with different goals written on them,” he says. “I have them pick out their top four goals, and then I have them rank the goals from most to least important.”

When Jensen does this with couples, he often finds that while their values may be aligned, certain financial goals might rank higher for one person than the other. “It can be a way to draw out the importance of certain goals that maybe you haven’t vocalized yet.”

3. Connect each financial goal to a deeper “why”

Just as with fitness or your career or your finances, tying your goals to specific motivations makes them more meaningful. Look at your list and write down the motivation behind each of your financial goals. What is it you’re really hoping to achieve?

For example, a goal of wanting to set up a trust might be tied to a larger desire to feel more secure about your family’s future. The deeper you can dive into the motivation behind each goal, the better.

“Goals have to be tied to a purpose,” Jensen says. “It’s about more than money. It’s what you can do with that money, like creating more security or providing for your family.”

Don’t worry if you rearrange the importance of some of your goals based on this exercise. And you can come back to your list of goals and motivations throughout the year if you find your discipline is waning.

4. Make a financial plan

Now that you’re armed with your goals and motivations, it’s time to get down to business and create a financial plan. You can either do this work yourself or get help from a financial professional to put specific numbers to each of your goals.

If you don’t have one already, sit down and make a budget or spreadsheet outlining every source of income and every expense per month (including discretionary expenses like groceries and entertainment). Add in the basics from Step 1 if they aren’t covered already. The difference is what you can put toward your financial goals from Step 2.

“I look at how much you’re making and how much you’re saving, and I view saving as an expense — probably your most important expense,” Jensen says. “Let’s say I know that 10-15 percent of your gross pay is going to savings. That helps me determine the number that you can spend on your other financial goals.”

Knowing how much money you can allocate to different goals each month gives you a clear direction on how to move forward. “By breaking it down, each goal becomes much more attainable,” says Jensen.

5. Revisit your financial goals regularly

Once you learn how to set financial goals and have your plan in place, the good news is that it’s not set in stone. “That’s the power of financial planning,” Jensen says. “It’s not a ‘set-it-and-forget-it’ task.” You can (and should) change your financial plan as your life evolves, and you can also touch base with a financial professional at any time to help.

Jensen recommends reviewing your financial goals at least once a year and/or if something changes in your life that affects your finances, like having another child or receiving an inheritance.

When you take the time to reflect on the “why’s” behind your list of financial goals and put them in a realistic framework, you’re more likely to stick with — and work toward — your plan.

Learn about our goals-focused approach to wealth planning.