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How to Set Your Financial Goals

As a Registered Investment Advisor, FLIT Invest’s key objective is to help you grow your wealth and reach your financial goals. The first step in that journey is identifying your financial goals. It may sound trivial, but most fail to plan and envision their financial future. To invest for a better future, you have to know what you aspire that future to look like. You may want to save up money to buy a house. Maybe, to build a nest egg for retirement. Perhaps both?

There are no right answers for your goals, but there are a few key concepts that can help develop them.

Setting your financial goals

Why are financial goals important?

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“Most people don’t plan to fail; they fail to plan.” ~ John L. Beckley

Making financial goals inspires healthier spending and saving habits and encourages you to handle your entire financial life better. Goal setting is the root of creating a financial plan and allows you to measure and monitor your savings progress.

It also keeps you more accountable to the financial plan you make as you keep your end goals in mind. According to Lincoln Financial Group, 83% of Americans who set financial goals feel better about their finances after one year.

How do I know my financial starting point?

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Before ever making a financial goal, it is essential to understand where you stand financially. That means tracking your inflows and outflows every month. How much are you making, and what are you spending it on? Review your income and categorize your spending to understand where your money is going.

Figuring out what you spend money on is the basis for creating a budget and identifying where the majority of your spending is going. You’d be surprised how often our spending doesn’t reflect what we care about in life! Budgeting will help you point out areas where you may be able to cut back on spending while giving you more flexibility to spend on the things you truly care about.

What do I want to achieve with my financial goals?

While some specific goals are essential from a need-based perspective for all people (i.e., retirement), individual financial goals and the weight of their importance to you are entirely personal. Most people need to save for retirement, but not everyone may want to own a car. Since planning for your financial future is not one-size-fits-all, figuring out your financial goals at its core is life planning. The somewhat cliché practice of envisioning where you want to be one, five, and ten years from now is all part of developing your financial objectives.

However, don’t let this process overwhelm you. Put the money aside (figuratively) and think about what is important to you and why. What are you motivated by, and what fulfills you in life? Understanding your needs versus your wants will help you make financial decisions with confidence in the future.

Why should I make specific financial goals?

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With that overarching picture of your future in mind, the next step is to develop things on a more specific level. Deciding what you need to save for is a lot easier when your break it down into sections. Bucketing is a term used to categorize our financial goals into separate themes or ‘buckets.’ You can choose how you want to rank your goals, but a good way to start developing them is by thinking of them through time frames of short-term, mid-term, and long-term. 

Organizing your financial goals

Short-term goals: under 1 year - 3 years

The general recommendation for short-term money goals is to set aside that money in a low-risk account. Often, this would be a savings account or other cash-like assets. When investing, short-term fluctuations may happen (and are expected), so for money that’s needed soon, it may be too risky. Beware of ads and people who are advocating for get-rich-quick schemes. While these can be tempting, investing comes with risks, so when someone promises returns, they are like the adage; too good to be true.

Like all goals, your short-term goals are totally up to you. However, here are some common goals to work towards to gain financial stability:

  1. Make a rainy-day fund: A little safety net of money just in case of unexpected costs you might suddenly incur. An emergency fund is often thought of as the base of your financial pyramid and a general rule of thumb is that it should be 2-6 months of your monthly expenses.

  2. Pay off high-interest debt: If you currently live with high-interest debt such as credit card debt, this is considered a short-term priority.

A short-term goal may also be a vacation you are looking to take or another large purchase you want to make in the near future.

Mid-term & long-term goals: over 3 years

These are the goals that you can start investing for as they are over the three-year mark. Mid-term goals are categorized as those that fall between five to ten years in the future. 

Long-term goals on the other hand are thought of as anything that is over ten years in the future. What comes to mind for most when they think of saving for something that far down the line is retirement. You may have a plan for when you want to retire and how much money you believe you will need by that point. Even if you aren’t sure of those things yet, the earlier you begin putting money toward a retirement fund the better. 

A general rule of thumb surrounding retirement as well as other mid-term and long-term savings goals is the recommendation that you save 15-20% of your gross income to be prepared. People often believe that they will spend a lot less during retirement than they do in their peak spending years. However, this is a false idea. In reality spending during retirement should be thought of as 90% of your peak spending. 

Achieving your financial goals

Categorize your goals

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You can make buckets inside of your buckets! Deciding your goals by thinking short-term, mid-term and long-term helps break down the goal-setting process and means you already have a loose outline of when you want to complete them. However, this is not the only way you can or should categorize.

It is helpful to make your goals a little more concrete by assigning them a more exact target date that can change over time but provides you a bit more purpose in saving. 

You can make buckets inside of your buckets! Deciding your goals by thinking short-term, mid-term and long-term helps break down the goal-setting process and means you already have a loose outline of when you want to complete them. However, this is not the only way you can or should categorize. It is helpful to make your goals a little more concrete by assigning them a more exact target date that can change over time but provides you a bit more purpose in saving. 

Taking stock of each goal and placing it into a priority bucket (is this goal a need, a want or a luxury aspiration?) can be helpful when unexpected challenges arise, and you need to get flexible.  

When deciding on and categorizing your goals, remember to be both realistic and conservative. This is where having a good idea of where you stand financially comes in handy. The idea is to promote growth by working toward something. It’s okay to dream big, you should push some of the larger accomplishments further down the line.

Write down your goals

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Have you been getting all this down? If not, definitely start. Writing down your goals can help you to clarify what exactly it is that you want. Beyond that, it is proven to help you work toward them. One study found that those who write down their goals are 42% more likely to achieve them. It is a good way to stay organized, focused and accountable.  

Be flexible

While accountability and purpose are important, life is unpredictable and nothing you plan for now is guaranteed to come to fruition. What you want and when you want it may change throughout time just as your ability to get it might shift. For example, when saving for a financial goal it is suggested that whatever you are saving for generally will end up being 15-20% more expensive than what you have intended.

Change is more often than not unexpected. Don’t worry if you feel like you are not on the perfect track. It’s okay if when you are saving you are not projected to have 100% of your necessary funds by your goal date—you can mix and match with savings and optimism that your future self will have some out-of-pocket spending abilities. So, keep in mind that financial goals are not set in stone and it is normal to revise them over time constantly. 

Financial goals are deeply personal and require a personalized investment approach. FLIT Invest is committed to providing quality investment advice with your best interest at heart. Start your wealth-building journey today!

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