How to set financial goals

Financial planning

Common setbacks in creating financial goals include:

  • Unrealistic expectations.
  • Lack of motivation and/or discipline to work toward a goal.
  • Failing to account for all expenses in a given month.

Setting and working toward financial goals become 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 establish and achieve 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.

  • Take inventory of what you have and consider what you need.
  • Build 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. Preferably 3-6 months of your take home pay.
  • 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 four 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 down payment on a house, 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 and select your top three or four goals ranked from most to least important.

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?

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.

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.

Don’t worry if you rearrange the importance of some of your goals based on this exercise. 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 travel 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.

Knowing how much money you can allocate to different goals each month gives you a clear direction on how to move forward.

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, 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.

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 how we can help you create a clearer path to reach your financial goals.