Takeaways
- Goal setting helps you reach your financial goals faster.
- Creating goals early in your professional career will give you financial clarity.
- Setting goals lets you achieve more than if you do not set goals.
- Aligning financial goals and lifestyle design helps goal achievement.
- Increasing your net worth will boost your rate of goal attainment.
Creating financial goals can change the trajectory of your life. Goal-setting experts describe their lives in two parts: before they started setting goals and after. Prioritizing your goal takes understanding what you want to achieve.
What Are Financial Goals?
Financial goals are both short-and long-term objectives that help you gauge success. In personal finance, financial goals can consist of near-term tasks such as sticking with your monthly budget or longer-term objectives like buying your first home.
Timelines For Financial Goals
You have financial goals that you want to meet. Knowing where to start and contemplating how long it is going to take you to reach your goals are important variables on the journey to success. Here are three timelines to consider when setting your financial goals:
- 1-Year Goals: Most people understate what they can accomplish in one year. Major financial goals, such as paying off credit cards or student loans, can be achieved quickly.
- 5-Year Goals: As you begin to accrue financial success by meeting your one-year goals, that momentum will carry toward your five-year goals. These could be goals such as buying your first home, reaching your 401(k)-contribution limit, or purchasing a new car.
- 10-Years or More Goals: Thinking in terms of decades can seem very far off into the future. But planning for success when you are 30, 40, 50, and 60 years old aligns your goals with your yearly actions. Goals like paying off your mortgage, paying for your children’s college, or buying an investment property could be goals that take decades to achieve.
7 Important Financial Goals
No matter where you are in your financial journey, here are seven financial goals everyone should aim to achieve.
1. Become Debt Free
Making your money work for you instead of working for your money is one of the keys to financial prosperity. Being able to transition from borrower to lender is a watershed moment. That catalyst begins with becoming debt-free.
Becoming debt-free should be a goal on everyone’s list and is often one of the first focus areas for personal finance experts. By paying your debt, you can put more money toward other goals. That’s why starting here makes complete financial sense.
Do you carry a credit card balance? Paying off high-interest-rate consumer debt, such as credit cards, is a great place to start on your debt-free journey. Because these debts carry interest rates well into the double digits, eliminating this first will free up your cash flow.
Smart Money Tips -> Tips on Getting out of Debt Quickly
Other debts, like student loans or car notes, should be next on the list. Choosing whether you want to use the debt snowball or the avalanche method for paying off your debt will help you tactically achieve this goal.
2. Save An Emergency Fund
Unplanned expenses happen all the time. It is just part of life. The dishwasher goes out, an unexplained leak from the ceiling, or you get hit with an unplanned medical procedure. Hedging against these random expenses should be a part of your financial goals. An emergency fund does just that by providing a financial cushion between you and life’s inevitable surprises.
Smart Money Tips -> How to Save $3,000 for Your Emergency Fund
Personal finance experts have long evangelized the necessity of saving at least $1,000 for an emergency fund. But with inflation and higher cost of living creeping into your life, personal finance experts are now calling for emergency funds of at least $3,000. Saving an emergency fund is the first step. Consistently adding money to it to alleviate rising prices, a growing family, or other financial pressures should be the next step.
Smart Money Tips -> Treasury Inflation-Protected Securities: What are TIPs?
3. Create a Slush Fund
With your debts paid off and your emergency fund saved, another financial goal is to save a slush fund. A slush fund is at least 3-6 months of living expenses. This fund provides you flexibility if you lose your job and gives that extra layer of financial security.
Take an inventory of your monthly expenses. If you lost your job tomorrow, what expenses would you need to keep paying until you found your next job? Think of expenses like food, rent, insurance, and transportation. Multiply these expenses by 3-6 to get your slush fund savings target.
A large enough slush fund can give you career flexibility. A slush fund allows you to find reemployment and find a career you love. If your slush fund is large enough, you might be able to proactively begin to search for a new job or remove yourself from a toxic work environment.
4. Invest For Retirement
Learning how to save for retirement can be hard to prioritize when you are early in your career. But your older self would encourage you to start saving for retirement sooner rather than later. According to a survey conducted by the Employee Benefits Research Institute, over 70% of retirees wish they had started saving earlier and they would tell their younger selves to change their saving habits [1].
The vehicles for retirement savings vary based on your employment and earnings level. Here are several retirement accounts to consider, each with varying degrees of contribution limits, benefits, and withdrawal limits.
- Roth IRA
- Traditional IRA
- Employee Sponsored 401(k)
- SEP Plan
- 403(b)
Smart Tip:
Harnessing the power of an employer-sponsored retirement plan like 401(k)s or 403(b)s and the power of matching contributions benefits can add thousands of dollars to your retirement account. Don’t forget this when you are evaluating this in your overall employee compensation.
5. Invest Regularly
Saving for retirement shouldn’t be the only time you invest. Investing is a proven strategy to increase your overall net worth. By investing earlier in your career, you can take advantage of compound interest. This allows your investments to grow quickly over time.
Investments to Consider:
Continuously investing is one of the single largest accelerators of wealth creation. Starting to invest can drastically change your financial future.
Smart Money -> Are You an Accredited Investor?
6. Increase Your Income
All your financial goals can be accelerated by making more money. The most traditional route to this goal is to launch career growth to increase your earnings capacity. According to the Federal Reserve Bank of New York, your first 10 years in the labor market predominantly determine your lifetime earning potential [2]. Navigating ways to accelerate your career and contemplating the arch of a career path can help you accomplish this goal. Increasing your earnings will allow you to quickly save, invest, and pay debt.
Smart Money -> 5 Ways to Curb Excessive Spending
There are tremendous opportunities in today’s economy to earn money outside of your day job. Whether you are trying to start your own business, exploring a side hustle, or thinking about wacky ways to earn more and offset your expenses, there are plenty of options if you are willing to put in the time and effort.
7. Lead A Rich Life
Life is not all about money. When contemplating financial goals, it is imperative to think about lifestyle design. We all have family, career, lifestyle, and personal goals. Money provides you with the resources to reach those goals. The rich life is about using money to lead a meaningful and purpose-driven life.
Smart Summary
Financial goals are the glue that keeps you on the right financial path. By creating goals early in your professional career, you can become surrounded by smart money moves. Over time, these goals will build a base that increases your net worth. Refreshing your financial goals is part of keeping your goals timely and relevant. Consult with a financial advisor if you want to speak with someone about what goals might make sense.
[1] Employee Benefit Research Institute. Retiree Reflections – June 2022. Last Accessed September 5, 2023
[2] Federal Reserve Bank of New York. What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Dynamics? Last Accessed September 5, 2023.
