Where to start with setting your financial goals
What do you see in your future? Is it a new house? Early retirement? Or do you just want to put the brakes on that bad credit card habit? Whatever you see for your future, the first step to getting there (no matter what your age or financial position) is always to set some financial goals.
Taking it back to basics, financial goals are specific and measurable milestones that, when reached, bring you closer to your ideal future. They can be things you hope to achieve in the short term or bigger things for further down the road, but the process of identifying what they are is important because then you can build it in to your financial plan and make it easier to actually reach them.
Everyone’s financial goals will be different because they’re very personal to you, your current situation and what you specifically want and need for your future, so there’s a lot to consider and we know this can sometimes feel a bit overwhelming. But the good news is, the process of defining your financial goals is quite straightforward when you have a framework to work to, so let’s dive straight in…
First of all, you need to ask yourself “What do I want?”. It might be something you’re hoping to buy, but it doesn’t have to be. You also don’t need to settle on just one – just think about what things you truly want, even if they feel like a bit of a dream right now. To give you a little inspiration, here are a few examples of potential financial goals, both purchase focused and not:
Purchase driven goals:
- A new home
- A summer holiday
- A new car
Non-purchase driven goals:
- Start investing
- Build a nest egg for your children
- Become debt free
- Have a good retirement income
- Pay off your mortgage
- Getting married
How to make your financial goals SMART
When you’ve landed on some end goals, the next step is to make sure they are ‘SMART’. You might have heard this term before as it’s often used in the workplace to make sure business objectives are met but, for those who aren’t familiar, ‘SMART’ goals are Specific, Measurable, Achievable, Relevant and Time-based.
For example, rather than having “I want to buy my first home” as your goal, try making it “I want to save £15,000 in the next five years so I can buy my first home’.
It’s specific because you’ve added the context of how much money you think you’ll need to achieve it.
It’s measurable because it’s easy to track how much progress you’re making towards the £15,000 target.
It’s achievable (providing your personal income allows) because when you break it down across the five years, it means putting away just £250 each month.
It’s relevant because it’s what you’ve decided is important to you.
It’s time-based because you’ve said when you want to achieve it by.
By approaching your goals in this way, you’re forced dig a little deeper and add extra detail that will really help when you come to building a financial plan to make it all happen.
What to ask yourself about your financial goals
Here are some questions to ask yourself which will make defining a smart goal that much easier:
When do I want to achieve this goal? - You don’t need an exact date (although the more specific you can be, the better)but try to be realistic with your time frame. Some goals will naturally take longer to achieve than others and that’s ok - try having a mixture of short-term and long-term goals.
How much money will I need to achieve this goal?- This is an easier process for some goals over than others, but don’t worry too much about getting it perfectly accurate. A general estimate will work be sufficient – it’s just so you have a figure to work towards.
How important is this goal relative to your other goals? – When you have more than one goal, it’s a good idea to order them into high, medium and low priority so that, when you come to building your financial plan, you can make sure that the higher priority goals are looked after first.
Once you’ve got answers for all of these, you can build it into your goal and, voila, you’ve got some SMART financial goals to work towards.