Setting a financial goal is not just about saving some cash away and reaching out for the cash each time you have money needs; rather, financial goals helps you to work towards your desires which might include changing careers, becoming financially free, getting a bigger home, sponsoring your child through college, or even building generational wealth.
The following steps will guide you in how to organize and realize your financial objectives.
How to save for different financial goals & benefits of planning your finances
1. Set Financial Goals: Know What You Want To Save For
Financial goals are the financial results that you want to achieve in terms of a certain time frame.
If you do not set your financial goals, it becomes hard for you to manage your money in a manner that suits your needs and wants in life.
These financial plans could be short, medium or long-term.
Short-term goals, usually achievable within a year, help you to sort your immediate needs which can include paying off credit card loans, buying new appliances, saving for the rainy day (emergency fund) or a vacation.
Medium-term goals, usually achievable within 2-5 years, help you to achieve more fulfilling life objectives like buying a car, making a down payment for a mortgage, renovating your home, changing your career, going back to college, starting a business, or even saving up funds for charitable causes.
Long-term goals require more time, usually above 6 years, but help you achieve life-changing events that might make you feel more fulfilled and accomplished, like buying a vacation home, paying off student’s loan, retirement, children’s education, completing your mortgage, or building generational wealth.
Read Also: 6 Habits You Can Learn from Successful Savers
2. Set Priority: Arrange Your Financial Goals In The Order Of Importance
Prioritize your goals according to their level of priority; for instance, putting together money to buy a refrigerator is more important than saving money for a holiday trip.
Therefore, it should receive more priority on your short-term goals. Saving up for rainy days is more important than buying a car.
Therefore, it should rank higher in your order of arrangement. Also, saving up for your children’s education has a higher priority and should also rank higher in your order of needs than saving up for a vacation home.
Read Also: 7 Superb Financial Goals You Can Attain
3. Avoid Mix-Up: Create Separate Accounts For Your Short, Medium, And Long-Term Financial Goals
Lumping your savings into one account can cause a whole lot of confusion; hence, it is more helpful to have separate accounts dedicated to your goals.
You should do so to maintain a check on how far you are from hitting your set objectives. If you have planned to invest for your retirement, you get the most out of a 401(k) or an IRA account since it provides you with so many exemptions on your taxes.
It will be easier to save into your various goal accounts when you set up automatic transfers from your checking account because it reduces the temptation to spend before saving and also provides a regular approach to achieving your goals.
Since the rule of thumb says 20% of your earnings goes into savings, consider a sharing formula that lets you save 10% into your long-term savings while 5% each goes into your short and medium term savings.
If you have extra cash after making your budget, consider diverting it into your ‘goal-saving’ accounts.
Read Also: 7 Signs that you’re Financially Smart
4. Invest: Let Your Money Earn More Money for You
Rather than letting your money lie in low-interest accounts that wouldn’t yield you anything significant, consider investing your savings into investment accounts that will offer higher yields with low risk to your money.
For short-term goals, consider options that will give you a significantly higher interest with low risk to your money, like high-yield accounts, certificates of deposit, money market accounts, treasury bills, or short-term bonds.
Long-term bonds (3-10 years maturity period), stocks, mutual funds, Real Estate investment, or Target-date funds are more ideal investment options for saving up towards medium-term goals. They offer higher interest rates compared with short-term investment options.
Stocks, property, ETFs, Physical assets, and other investments such as private equities or arts are riskier than short and midterm investment products, but because of the long-term period, your investment is given enough time to regain any losses and at the same time, it would help in building your investment faster.
401k and IRA, for example, are perfect for individuals who are closer to retirement because they offer a tax-sheltered accounts with little influence on your capital.
Read Also: Grow Your Money Faster: 9 Easy Investment Tips
5. Keep Track Of Your Progress: Make Adjustments
Tracking your progress helps you make adjustment where necessary and keeps you focused.
For example, if your stock gives you a significantly higher profit while your bond is at a standstill, you might want to consider moving a part of your capital from stock to bond to keep your portfolio balanced.
As you inch closer to your retirement or achieving your goal, it is ideal to diversify your capital from more volatile investments like stocks into more stable investments like bonds, CFDs and mutual funds.
Benefits of Planning Your Finances
Planning your finances is akin to setting financial goals without which it will be almost impossible to fulfill your dreams and aspirations.
Planning your finances helps you to achieve the following:
1. Knowing the Order to Prioritize Your Financial Goals
Planning your finances helps you to know what goal to give the most priority to, hence helping you to achieve the goals that matters the most to you without you getting distracted by ‘wants.’
2. Prepares You for Major Challenges of Life
Sticking to a good financial plan prepares you for life’s unexpected challenges and events which can include loss of home to natural disasters, damages to home and properties, getting married, changing careers, paying children’s school fees, or retiring early.
3. Heavy Cut Down On Taxes
Part of financial planning includes saving up for retirement using tax-advantaged accounts like 401(k) or IRA, which gives you a significant tax cut; thus helping you to save more and also achieve your goals earlier than the scheduled timeframe.
4. Grow Your Net Worth
With clear financial planning, you’re more likely to save consistently, invest strategically and make wise use of compounding interest to build your net worth over time.
5. Give Your Family and Loved Ones a Good Future
A good financial plan is also useful, in particular in providing for the future of your loved ones by ensuring that your estate is administered as you deemed fit even after you are gone.
6. Makes It Easy To Change Career
Many desired a change of career in their mid-life, but few achieve it with proper financial planning in place, you will not find it hard changing your career, learning a new skill, or, perhaps, shifting from a low paying job to a well-paid one.
Conclusion
Financial goals, strategic planning, and the discipline required following your goals through with consistent saving and wise investment options will go a long way in helping you achieve your dreams and aspirations while making your life more fulfilling.
