Let me start this post by singing..
Do you know where you’re going to?
Do you like the things that life’s been showing you
Where are you going to?
Do you know? …
Ok tama na. Baka umulan pa. Lol! I just borrowed the lyrics of the song to emphasize the importance of knowing where we are heading.
This is so true in life and even in finance. We should have our goals! If you read my previous article about budgeting 101, you’ll see that setting financial goals is a main part of financial literacy.
You should know what you want to accomplish in following your budget plan.
As a personal example, our major financial goal for now is to build our emergency fund. This is our main goal for now as we started the new stage in our life as a couple.
If you’re aiming to be financially free someday like us, it is important that you set your financial goals today. Setting financial goals can give us clarity of what we want to achieve and when to achieve it financially. This will be our target in our journey in financial freedom.
If you’re looking for ideas on why and how to set and achieve your financial goals, then continue reading.
Why set financial goals?
The main reason why we need to set financial goals is to have a clear view of what we want to achieve financially. Like any other goals in life, this will serve as our roadmap in our financial journey.
Like what the lyrics says above, by having financial goals in life we can easily tell where we are going to. Sad to say many of the Filipinos do not have their financial goals, they don’t even know the meaning of it.
We should be in control in everything we do in life especially in our finances. By having and setting financial goals, we are working towards something that can lead us to a brighter future.
If you are married, it is absolutely essential that you and your spouse both share the same financial goals. Otherwise, achieving your personal goals is almost impossible.
Develop your financial plans together, and review your progress together to make sure both of you are contributing to the same goals.
How to set financial goals?
Setting financial goals is like setting other goals in life. For personal example, this is how we do it. Grab a notebook and and pen and write everything you want oto achieve in your life financially. List all of the things that comes in your mind. Don’t limit yourself.
Once your done, get back on the list you created and see what you have. You can remove and refine financial goals according to your preferences. Be realistic. As advise by the expert, be SMART in setting your goals in life. Here’s what SMART means.
S – specific
M – measurable
A – attainable
R – realistic
T – time bound
This is the most effective way of setting financial goals in life. We need to be SMART. Say you want to save money for your emergency fund, you need to identify how much exactly do you need. As advised, a 6 month equivalent of your monthly expenses is good.
Financial goal: Build an emergency fund amounting to 150,000 pesos until December 2017. I will save 5000 pesos each month to achieve this goal.
As you can see from the example above, the goal of having an emergency fund is more smarter than just saying building an emergency fund. By being SMART, you can clearly tell what, when and how you can achieve that goal.
That is just an example. You can adjust and change the details if you wish according to your personal preference. But I hope you get the concept. What important is we should set SMART financial goals in our life to be successful.
Financial goals are also categorized into 3 parts. The short-term, mid-term and long-term financial goals. This is based from what I learned through reading, watching and attending some seminars about personal finance.
Determining what your short-term, mid-term, and long-term financial goals is the first step. Some common financial goals are a dream vacation, a new home, college savings, retirement savings, and an emergency fund.
Once you or you and your spouse have agreed on your goals, the next step is to determine a good estimate for how much money you’ll need for each of them.
Figuring out an accurate amount involves discussion about the financial goals—for example, if you are saving for college for your children, what percentage do you want to pay? Also, do you want to pay for a private school or a public school?
Retirement savings needs depend greatly on the lifestyle you plan to lead once you are retired, as well as when you plan to retire. This is what we are doing right now in our financial journey.
We have our short-term financial goals like travelling out of town on our anniversary or attending a personal finance seminar at least twice a year, mid-term financial goals like buying a 2nd hand car or our own house or home and a long term goals like our child’s education and our retirement.
This may be different from what others have. As mentioned, different people have different goals in life. Please use this as an example or reference. Like the example above, we should have our own specific amount, date and time when we are aiming to have these financial goals.
We need to be SMART.
Prioritize each of your financial goals in order of importance, and then determine how long you have to save for each of them. Retirement could be many years away, but your short-term goals could be in a year or two.
Next, estimate how much interest or capital gains you’ll expect to see in the accounts where you are saving your money. From there, you can decide what kind of investment vehicle you can use to help you achieve your financial goals.
You can check my post about top time deposit account in the Philippines for basic investing to grow your money and help you achieve your financial goals.
Finally, figure out how much you’ll need to save per month to achieve your financial goals. Don’t be discouraged if the amount is overwhelming. The important thing is to have a set of tangible financial goals to work toward.
On a monthly or quarterly basis, you should review your progress, and continue to refine your plan. If you aren’t meeting your goals, revisit your financial budget to see if there are any areas where you can cut expenses in order to free up money for savings.
Hope you find the information above useful about setting financial goals. If we really serious about getting financially free, we need to set SMART financial goals and work towards achieving it.
It takes a lot of discipline to achieve and along the way there could be some hindrance and trials that may stop us from achieving it. But that shouldn’t stop us.
We should stay determined and focused so that whatever happens we can reach our target. It may take time, but that’s ok.
A small step everyday is enough to move us forward.