The importance of setting financial goals.
Have you ever asked yourself “what’s the point of saving all this money?” Saving money can sometimes feel like an exercise in futility, one where you’re aimlessly socking money away for no other purpose than you know you’re supposed to. To be clear, saving money is a key component of personal finance and a crucial step in achieving financial success. But sometimes you’re just not sure why you’re saving. If you’re experiencing this phenomenon, don’t worry because you’re not alone! It’s a very common issue that savers run into, and luckily for you, one that is easily solvable.
If you’re feeling aimlessly lost in the land of saving, you need to establish financial goals to find your way out. At least one goal, more than one is totally fine too. Establishing goals will answer the question of WHY you’re saving money, because the answer is to accomplish your goals! Once you’ve established the why in the equation, you’re well on your way out of the savings wilderness.
Here are some pro tips to help you establish your financial goals and know why you’re saving your money:
- Write out a list of all the financial goals you can think of. It can be anything from saving for an awesome vacation to aiming for early retirement and financial independence (which is what we’d recommend, of course👍).
- Narrow that list of goals down to one to three goals. Don’t worry, you can save the rest for later, but focus on the ones that mean the most to you right now.
- Refine those goals to make them specific, achievable, and measurable. Here’s some help as you’re refining:
- Your goals should be specific so you know exactly what you’re aiming for. An example would be something like “I want to save $30,000 over the next 2 years for a down payment on a house”, which is much more specific and effective than “I want to save up for a down payment on a house”.
- Be sure your goals are achievable because you don’t want to set yourself up for disappointment later. If you can only save $5,000 a year, a goal of saving $30,000 in 2 years is not achievable. Make sure your goals can be realistically achieved in the time you want to achieve them.
- Make your goals measurable so you can assess your progress along the way. If your goal is to save up a $30,000 down payment, you’ll know at any given time how close you are to reaching that goal.
- Work backwards to figure out how much you’ll need to save each month to accomplish your goal. Back to the $30,000 down payment example, say you decided you’ll want that much saved after 2 years. Simply work backwards to calculate how much you’ll need to save every month to make that happen. In this case, 2 years is 24 months (12 months per year x 2 years) so you’d divide $30,000 by 24. The result is that you’ll need to save $1,250 per month to have $30,000 after 24 months.
- Make your financial goals a part of your financial plan. Read more about financial plans here.
It’s that simple! Now that you know the trick to know why you’re saving money and keeping yourself motivated, get out there and keep saving!
For lots more on how to crush the personal finance game and find early retirement, make Firreo your financial advisor. We’ll help you out of your job and on your way to financial freedom!