How To Set and Achieve Financial Goals

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Although much has been made about how the American economy recovered from the depths of the COVID-19 pandemic and how low the unemployment rate is, the truth is that things are still tough for many Americans. CNBC reported in 2022 that only 44% of Americans could handle an unexpected $1,000 expense, which implies that other financial goals remain out of reach as well.

Whether your goals include short-term financial goals or long-term financial goals, the first step is to set them.

How To Set Financial Goals

Setting goals can feel overwhelming, but there are a few steps you can take to make sure you’re setting realistic goals that you can actually achieve.

  1. Understand your current finances. You have to understand what you’re working with before you can decide what to do with it.
  2. Know what you want. Big or small, what do you want from your finances? Do you aspire to homeownership or just want to take a single vacation?
  3. Make sure your goals are SMART: specific, measurable, achievable, relevant, timely. If you set goals that aren’t realistic, you’re setting yourself up to fail.
  4. Make a plan. Put together a budget and a savings plan — and hold yourself accountable to stick to them.

4 Types of Financial Goals

While it’s hard to conjure extra income out of thin air, there are concrete steps you can take to help move you forward toward each of your financial goals, even if it means setting reduced expectations or just opening a savings account. The bottom line is that the earlier you start planning for what you want to achieve, the more likely you are to do it. Here are four types of financial goals and how you can achieve them:

  1. Paying off debts
  2. Building an emergency fund
  3. Buying a house
  4. Building your retirement savings

1. Paying Off Debts

Debt is a slippery slope, and unfairly disproportionate for those with low income or no savings. When possible, don’t procrastinate on paying off debts, and set your first financial goal to be paying these in total. Once you get done paying, you can start saving.

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Setting Financial Goal: Pay Off Credit Card Debts

When it comes to common financial goals, getting out of credit card debt is right near the top of the list for most Americans — as it should be. Having credit card debt is likely the top cause of why Americans can’t reach their other financial goals.

With oftentimes high double-digit interest rates, credit card debt can rapidly snowball out of control until you’re simply paying off the interest every month without reducing the actual debt. This is why it’s paramount to attack credit card debt aggressively.

Achieving Financial Goal: Pay Off Credit Card Debts

Typically, two methods are cited as the best ways to pay off credit card debt: the debt snowball and the debt avalanche. With the debt snowball, you pay off your smallest credit card balance first, then tackle the next largest after that and so on. With the debt avalanche, you’ll pay off the highest-interest debt first, regardless of its size.

Both methods have pros and cons, but as long as you create a plan and stick to it, you’ll make progress against your credit card debt. To give you a head start, try to boost your savings even by an extra $50 or $100 per month and put it towards your credit card debt. You could also temporarily divert your other savings, such as your retirement plan contributions, to help prevent your credit card debt from spiraling out of control.

Setting Financial Goal: Pay Off Student Loan Debts

Paying off student debt is somewhat similar to paying credit card debt, although interest rates and payment terms are often more generous. In the current environment, however, you’ve got a friend behind you in the form of legislative action.

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Student loan payments have been deferred throughout most of the COVID-19 pandemic, and on August 24, 2022, the Biden Administration announced that it would forgive as much as $20,000 in student loan debt for qualifying debtors. There remains the potential for future cancellations, as well.

Achieving Financial Goal: Pay Off Student Loan Debts

For now, the best course of action is likely to suspend your payments as long as you can to fund other financial obligations, while keeping your eye out for additional legislative action that may reduce or even eliminate your student debt. 

2. Building an Emergency Fund

Financial shocks and unexpected expenses happen. When they do, it is good to have money set aside specifically for this reason so as to not hugely impact your finances or send you spiraling into debt.

Setting Financial Goal: Create an Emergency Fund

An emergency fund is essentially a separate savings account and an easily accessible cash reserve you have set up in case of medical or insurance bills, car repairs, job loss or other issues outside your typical monthly budget. 

Achieving Financial Goal: Create an Emergency Fund

One good way to start saving or create an emergency fund is to budget out your expenses in percentages. For example, the 50/30/20 rule of budgeting advises people to save 20% of their income every month. That leaves 50% for needs, including essentials like rent and food. The remaining 30% of your income is for discretionary spending. That 20% you’re saving can be put directly into your separate emergency fund.

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You could also try a money-saving challenge, like saving all your spare change, and deposit what you save straight into your emergency fund account.

3. Buying a Home

Buying a home is likely the biggest investment you will make in your entire life. Even for the financially savvy or those earning lots of money, it takes work and planning to make that dream come true.

Setting Financial Goal: Buying a Home

The biggest step for most is saving enough for a down payment. Although you can put up nearly any type of down payment on some homes, it’s best to raise at least 20% for a number of reasons.

First, you won’t have to pay extra on your mortgage in the form of private mortgage insurance, or PMI. Next, you will immediately have equity in your house and won’t likely have to worry about being underwater.

Achieving Financial Goal: Buying a Home

Starting a dedicated savings plan for a home — and charting out how much income you will need to realistically afford a monthly mortgage payment — is a good step toward achieving this goal. Once you know how much you need to save for the type of house you want, you’ll be able to make a plan for how long it will take and any extra saving and budgeting you can do.

4. Building Your Retirement Savings

Saving for retirement is a lifelong endeavor, and it may very well be the most important financial goal you’ll have. Fortunately, there are many opportunities you’ll have to save for retirement, and it’s important to take advantage of them as soon as possible. 

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Setting Financial Goal: Saving for Retirement

What you save now in the short-term can greatly impact your life in the long-term. Retirement savings are essentially the money you will have to live out the rest of your life, so setting this goal today is a great first step for tomorrow.

Achieving Financial Goal: Saving for Retirement

If you work for a medium-to-large company, you likely have access to a 401(k) plan, which can be one of the best investments you’ll ever make. Most employers match at least a portion of employee contributions, essentially pouring free money into your account every year.

If you don’t have access to a 401(k) plan, start an IRA as early as possible and contribute as much as you can. The true key to reaching the financial goal of a retirement nest egg is to start as early as possible. If you can begin at age 20 with as little as $100 per month, at a 10% annual return, you’ll have nearly $1.3 million by the time you reach age 67.

How To Achieve Your Financial Goals

The most important way you can set yourself up to achieve your financial goals is to have a plan and stick to it. It’s keeping yourself accountable for following your plan that gets harder. Here are a few strategies you can try:

  1. Visual reminders: Put a picture of what you’re saving for in your wallet, in front of your credit card, to stop yourself from impulse spending. Or put a chart or graph on your desk or fridge and fill it in as you go, so you have a clear representation of your goal in easy view.
  2. Automate savings: Set up direct deposit from your paycheck to send a specific amount into your savings account every time you get paid, or set up automatic transfers from your checking into your savings every month.
  3. Try the buddy system: If you have a friend or family member who is also working toward financial goals — whether they’re the same as yours or not — you can keep each other on track with regular check-ins.
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Final Take: Why You Should Set Good Financial Goals

The point of setting your financial goals is to be financially secure in your future. Not only will setting and achieving financial goals improve your lifestyle, but it also becomes a domino effect of other financial improvements. For example, starting an emergency fund of cash you can dip into for the unexpected keeps you from having to go into credit card debt, which improves your credit score, which helps you secure a loan for a new home.

FAQ

  • What are examples of financial goals?
    • Here are some examples of financial goals:
      • – Save for college
      • – Save for retirement
      • – Save for a down payment on a house
      • – Save for a down payment on a car
      • – Start an emergency fund
      • – Pay off debts
  • What are the best financial goals?
    • The best financial goals to set are the ones that make sense for your unique financial situation, keeping in mind how these goals will improve it.
    • The first step is to usually save money on any level. It can be a short-term goal, such as saving for a car, or a long-term goal, such as a retirement plan.
  • What are the major three financial goals?
    • The best way to both save money and improve your finances, credit score and overall financial security are by setting these three financial goals:
      • – Pay off debts
      • – Start an emergency fund
      • – Save for retirement

John Csiszar contributed to the reporting for this article.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

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