Financial goals: How to set and achieve them
February 8, 2024 7 min read
Whether you want to pay off debt, increase your income or save for a down payment, setting financial goals can help you plan for the life you want. But when it comes to financial planning, knowing where to start may seem overwhelming. The good news is there are steps you can take to manage your money and reach your milestones.
Read on to learn how to set financial goals and the strategies that could help you achieve them.
A money management strategy is typically required in order to reach a financial goal.
Financial goals can be short term, like saving for a family vacation, or they can be long term, like saving for retirement.
According to the Federal Reserve, 36% of nonretired adults think they are on track to achieve their retirement savings goals. Another 45% believe they aren’t saving enough.
Using goal-setting guidelines—like the SMART formula—could help you break down large financial goals into smaller tasks.
What are financial goals?
A monetary target is required to achieve a financial goal. For example, deciding to eat healthier is a great personal goal, but it’s not necessarily a financial one. However, setting a goal to pay off debt could help you achieve financial success.
Common financial goals may include saving for retirement and paying off debt. However, everyone’s financial situation is different. Your financial goals may depend on your current debt, cash flow or lifestyle. And your short-, mid- and long-term plans could also influence how you save and invest your money. Here are some common financial goals at every stage of life:
Mid-term financial goals: It may take five to 10 years to reach a mid-term financial goal. These goals may include saving for a down payment on a house, paying off student loans or becoming debt free.
Long-term financial goals: Long-term goals, like investing for retirement or saving for your child’s college tuition, may take more than a decade to accomplish.
How to set financial goals
Deciding on a financial goal is great, but that’s only half the battle. Knowing how to use goal-setting strategies can help you achieve your monetary milestones. Some experts recommend the SMART guidelines for setting financial goals. These guidelines may help you break down large goals into smaller, easy-to-track tasks. SMART stands for:
Specific: Specify the tasks you need to complete in order to reach your goal.
Measurable: Decide how you’ll track your progress.
Attainable: Is the timeline doable? Does any part of the goal feel overwhelming? It’s important to ask questions, evaluate your progress and set realistic expectations.
Relevant: Consider if the goal aligns with your values and your desires for the future.
- Time-bound: You could set timelines for reaching your goals and break down large goals into smaller tasks that have their own deadlines.
Examples of financial goals
Do you want to improve your finances but aren’t sure where to start? These examples may give you some inspiration to set your own goals:
Create a budget
Calculating your net income, living expenses and disposable income can help you understand your current financial situation and prioritize your spending. The 50-20-30 rule is a popular budgeting method that recommends using 50% of your income for expenses, 20% for savings and 30% for wants. You could also visit MyMoney.gov to search different types of budget worksheets.
Improve financial literacy
Boost your credit scores
Your credit scores are a key part of building a solid financial foundation. That’s because lenders could use your scores to determine your creditworthiness. And this information can affect the loans or credit cards you’re approved for and the interest rates you’re offered.
Credit scores may also influence your ability to rent an apartment. Some employers even consider credit health before extending a job offer. If you have less-than-perfect credit, there are steps you could take to improve your credit scores.
Pay off debt
If a chunk of someone’s budget is going to high-interest debt payments each month—like credit card debt—they won’t have as much money to put toward their saving or investing goals. The good news is that there are strategies you could use to pay off debt and free up your finances.
Save for a down payment on a house
Build an emergency fund
An emergency fund is a dedicated savings account that you can use in the event of job loss or to cover unexpected expenses—like car repairs or medical bills—without dipping into your other savings or investment accounts. The Federal Reserve recommends keeping at least three months of expenses in this fund.
Save for retirement
Plan for a child’s college tuition
If you have kids, it may be a priority to save for their future education. Some people use 529 plans to prepare for college costs.
How to prioritize your financial goals
Prioritizing your goals can help you chart a time frame and develop an investment strategy while balancing your current lifestyle.
If you’re looking to improve your financial health, here are some priorities you may want to consider:
Analyze your expenses. Tracking your expenses will help you determine your current cost of living and the amount of money you can realistically use for savings and debt payments.
Focus on short-term goals first. It may be helpful to prioritize certain financial goals—like building an emergency fund—over less-pressing goals, such as saving for a vacation. Starting with smaller, more achievable goals—like paying off your smallest debt—can free up resources and help you fund your larger goals.
Talk to a professional. You don’t have to become an expert overnight. A certified financial planner can work with you to create savings and investment strategies tailored to your goals.
Readjust and refine as needed. Having timelines for short-, mid- and long-term goals can help you track your progress and shift priorities as needed. Scheduling regular check-ins can help you see where you stand and help you figure out next steps.
How to achieve your financial goals
When you have a financial goal in mind, it’s important to consider the timeline needed to achieve it. If you aren’t sure how long it will take to reach your goal, you could use these time frames as a reference point.
Achieving short-term financial goals
According to the Consumer Financial Protection Bureau, short-term goals may take less than five years to achieve. These goals could include things like creating a budget, building an emergency fund or paying down debt.
A high-yield savings account or a money market account may help you save for your near-term goals. These types of accounts could give your money some padding from inflation while keeping your assets liquid.
Achieving mid-term financial goals
Money market and savings accounts could help you save for mid-term goals too. You could also consider a certificate of deposit (CD). Many CDs require funds to remain in the account until the account’s maturity date. If you withdraw money early, you may have to pay a penalty. However, some CDs may not have early-withdrawal fees.
Achieving long-term financial goals
Retirement accounts—like 401(k) plans and IRAs—can help you financially prepare for the future. These accounts are meant for long-term investing. If you need to withdraw money early, you could face a penalty.
For example, there is a 10% tax penalty for withdrawing funds from an IRA before the age of 59 1/2. It’s helpful to consider your desired retirement age and lifestyle so you can create a sustainable saving and investing strategy.
Two tips for achieving any financial goal: Make savings automatic and track your progress
Direct deposits or recurring transfers can make it easy to save and invest money. Automating contributions can reduce the temptation to spend these funds on other things.
It could be helpful to dedicate different accounts for different goals. This strategy could organize your finances so you can track your progress.
Financial goals in a nutshell
Setting a financial goal is a step toward financial security and success. As you work toward your monetary targets, remember to track your progress and adjust your plans as circumstances change.
As you gain financial awareness, you may want to explore new options for managing money. For instance, using a credit card responsibly could help you build your credit history. And some cards offer cash back rewards that could be used for saving or investing. You can compare credit cards to find one that may support your financial goals.