The process of setting financial goals is no different from setting any other type of goal. The strategies and tools, however, that you use to achieve your financial goals may be different.
For instance, to measure your progress, you may use a budget. To avoid the problem of motivation, you might automate your savings.
Below are ten strategies for achieving your financial goals.
Strategies for achieving your financial goals
1. Make your goals SMART.
As with any other goal, use the SMART system to make your goals specific, measurable, attainable, realistic and time specific.
2. Do some research and some calculations.
Your goal may be to travel overseas. How much will it cost? Call up a travel agent today and do some research. Once you have a ball-park figure with which to work (overestimate a little), divide it up into months.
For example, You plan to travel overseas in 12 months and you estimate that you will need to save $8,000. This is $667 dollars per month to save, or (if you get paid weekly) $167 needs to come out of your pay packet each week for you to be able to reach your goal.
3. Use your budget.
I have written before about tracking expenses and building a basic budget. Building a budget gives you a snapshot of your current financial situation, financial health and spending habits. It is impossible to know if and how will reach your financial goals without first knowing where you stand financially.
Once you have worked out how much you will need to save each month for your goal, slot this amount into your budget and look at the bottom line. Using your budget in this way will give you an instant idea whether your goal is attainable given your financial habits. Your budget is your financial blue print, your means to an ends.
4. Earn more than you spend.
So you need to make some adjustments to achieve these goals? There are three options here, earn more, spend less, or both. Of course, the most powerful option is to earn more and spend less at the same time. Use your budget and look at each of your expenses in turn and see if you can reduce them. Shaving as little as 5% off each of your expenses could save you thousands a year.
5. Track your progress.
Use your budget and continue to track your spending behaviour and savings plan against your budget. Celebrating milestones motivates you to keep going.
6. Pay yourself first.
For each pay cheque, rather than spending first and saving what is left over at the end of the week, put aside your savings or investment amount (including savings to meet future bills) first and then spend the rest. You will find that there is rarely money left over at the end of the pay period to put towards savings if you pay yourself last. Also, you won’t miss what you don’t see.
7. Automate v Discipline.
Take the “pay yourself first” principle one step further and automate your payment. Commitment and discipline are all very well and good, but automation is better. Internet banking means you can set up a recurring automatic transfer from one account to another within a matter of minutes. Of course, you will still need discipline to stop yourself from dipping into your savings account or wracking up debt on the credit card.
8. Create an emergency fund.
Hopefully you have budgeted for and can cover most expenses that occur throughout the year. However, unexpected expenses always pop up and having an emergency fund means you have available funds to cover them. The amount that you save for emergencies will vary depending on your circumstances. A couple of months worth of living expenses including mortgage/rent, groceries, and utility bills is a good amount to aim for.
9. Give yourself an allowance.
Having an allowance to spend on whatever takes your fancy takes a little of the restrictiveness out of sticking to a budget. This is also good if you have to budget with a partner. This money is yours (or theirs) to spend on whatever you like without needing to justify your spending.
10. Educate yourself.
Investing (time) in your financial education is the one of the best financial investments that you can make. Increasing your knowledge of personal finance gives you the power to make financial and investment decisions, and goes a long way to protecting you from unscrupulous financial advisors. A great places to start learning about personal finance (and where I started) is Robert Kiyosaki’s Rich Dad, Poor Dad book.
Take some time out to examine your financial position and your financial goals, and take action today to achieve those goals.
Please feel free to leave a comment or question below.
Using Your Budget to Monitor your Progress