Setting Your Financial Goals
77% of Americans feel anxious about their financial situation and 58% feel that financial concerns control their life.
If you've ever worried about your finances, don't worry, you aren't alone. Most of us have at least at some point in time felt like slaves to our finances. So how then, do we start moving away from the anxiety and start feeling in control?
First Step Towards Financial Freedom
I'd argue that the first step towards doing anything is not doing, but understanding what you're trying to do and why you're trying to do it. If you don't have a clear what, you won't know what you're working towards and when you've actually accomplished something. If you don't have a clear why, you won't have the motivation to keep chasing after the what.
Achieving our financial freedom starts the same as achieving anything else in life; you need to first set goals. Goals will help us measurably define our what and our why. This is why in order to achieve financial freedom we need to first set financial goals. Setting financial goals is the first step to financial freedom.
Find Your Financial Inspiration
Unfortunately only 30% of Americans have actually made long-term financial plans, and I personally think there's a strong correlation between this statistic and the large proportion of people who feel anxiety and powerless.
Although I've been preachy about setting well-defined goals, I've lived most of my life in the 30% category, without setting my own goals. If you're the same, the thing is just know it's kind of not your fault. Society teaches us how to find a job and earn a salary, but beyond that we've generally lacked guidance. We're not taught how to manage our money and the average basic financial literacy rate is extremely low (A whole other topic I wrote a blog post about HERE). Also, to be very honest, in the beginning your finances are something extremely scary to face head on.
To face it, you need to find your financial inspiration. This could be reducing your stress by being debt free, being able to afford your first house, or having an emergency fund big enough to sustain you and your family in the case a series of rainy days come along. Take the time to jot them down, no matter how far-reaching they may seem. You'll soon find that you have a large list of financial inspirations and through these inspirations you'll begin to find your aspirations.
Turning Inspiration Into Aspiration
Now that you've listed your inspirations, let's turn them into aspirations. After all you might be inspired in this very moment, but it means nothing if you do nothing with them. You need to turn your inspirations, or the process of being mentally stimulated, into aspirations, the actionable ambition to achieve something. To do this you need to make short-term, mid-term, and long-term goals.
SHORT-TERM GOALS
Short-term goals are very important because they are going to be goals you can achieve in the not so distant future. These small "wins" will not only set the basis for your other goals, but also help keep you motivated to achieve the mid-term goals and the mid-term goals will likewise help you achieve your long-term goals. The following are examples, listed in order of importance, of very common short-term goals that I believe are essential for everyone to have.
Create/Track Your Budget
If you don't have a budget, you need one. A budget is the foundation for keeping your other goals in order and helps you from overspending and under-saving. If you don't know how where your money is going now, how are you going to better decide where your money goes in the future? You might find out that you're spending over $300 on eating out a month or that all your subscription services are costing you $100 a month. your This one might be an eye-opener for a lot of people. A product that I use and highly recommend for tracking and almost everything else is Mint.
Create an Emergency Fund
You might want to open a dedicated savings account for this, if you don't already have one. Start out small with a goal of $500, $1,000, or maybe what's necessary to cover any credit card bills you might fall behind on. Then expand it so that it can eventually cover you in the case that you lose your job. You might have other goals such as saving for retirement you want to put this money towards, but trust me the purpose of this is to give you a peace of mind. This is incredibly important so that you don't fall in that 77% of people who feel financial anxiety. You never know what life might throw at you and so having an emergency fund will make sure you have some small padding when things go awry. Like my mom used to always say, "make sure you save for a rainy day".
Pay Off High Interest Debt
This honestly might be equally important as creating an emergency fund, because the scary thing about high interest debt is it can snowball out of control really quickly. The more you wait on fully paying off your debt, the more you'll find yourself struggling to keep up with the interest payments. Its a viscious cycle that'll keep you in debt forever. Make a list of your loans, credit card debts, e.t.c and rank them in order of interest rate. Knock out the highest interest debt first and then keep going down that list.
Start Saving For Retirement
I always like to use the story of how if you put in only $5,000 into a retirement fund at age 20, it would turn into $160,000 by the time you retire at 65. With a 401k or IRA, the earlier you start the better. This is a short-term goal because I want you to just open an account if you don't already have one. Start putting what you can into it and you'll be amazed at what it generates for you down the line.
MID-TERM GOALS
With mid-term goals, this is where you need to start figuring out definitions and orders of importance for yourself as everyone's situations might be different. Remember these are goals you hope to achieve in a few years from now. Here's a list of some that you might want to think about.
Paying off Student Loans
A big one for a lot of people. Being able to pay this one will not only be a huge financial burden off your shoulders, but also a huge emotional and mental burden lifted. This will feel really good to get out of your way, because it'll enable you to really start to kick off your other bigger goals.
Make a Down Payment on a House
A huge one on a lot of people's lists is to own their own house. This is a huge endeavor to take on, but probably a very rewarding one for you.
Fund Your Child/Grandchild's College Tutition
This is another common one on people's lists. You're gonna have to work hard on this little by little, but your kids/grandkids will be giving you a well deserved thank you when you're done.
LONG-TERM GOALS
Generally the one that comes to mind here is having enough money for retirement, but hopefully you started early with the short-term goal of creating a 401k or IRA and have been slowly contributing ever since. Other than that, long-term goals can range from having enough money to never work again to being able to buy that Lamborghini you've always dreamed about. Just remember, although these are long-term goals now you may find that they turn out to be mid-term or even shorter goals if you start early and work smartly.
Remember to Enjoy Yourself
The road to reaching your financial goals can be long, but by starting to make concrete financial goals you've already taken the first and most important step to achieving your financial dreams. Give yourself a big pat on the back and reward yourself if you read this post and started writing down your financial goals!
I just wanted to say that like you I'm just YourAverageInvestor, so I'm taking this journey along with you. Make sure as you go on your journey to let yourself, your loved ones, and even me know about the wins, big or small, that you've made along the way. Reward yourself now and again and smile knowing that you're taking very important steps that will change your life.