If you want to come up with a real plan for getting out of debt or financial freedom, you need some long term financial goals and short term financial goals!
So, once you envision your life to be without debt and you know where your debt stands, where to go next? Make some financial goals! Okay, okay definitely not as exciting as it sounds, but so necessary to truly track your progress and where you plan to go.
what are financial goals?
Financial goals will give you a better direction of how you are going to be spending (or saving) your hard-earned money.
Of course, everyone wants to get out of debt or go on vacation, but how you will actually do that is why you need clear financial goals. Writing out financial goals can help you to clearly see what your vision is and help keep you on track.
long term financial goals
Long term financial goals are important because they will help you reach forever financial freedom. When making long term financial goals, I like to have more of a broad goal (but sometimes I use the SMART format…more on that later). Short term goals are where you will get into the nitty-gritty.
Some long term goals I am trying to reach with the financial decisions I have been making:
- Be debt-free
- Pay off my mortgage in less than 15 years.
- Forever financial freedom
You might ask why I have two debts listed separately. The debt of my mortgage is a different type of debt than the other debts I had or have. Lemme tell you…the second I walked off that car lot, my car immediately dropped in value. Now our home, on the other hand, has done nothing but increase in value since we did some upgrades.
Not sure where to start? Well, you already did- go back to your why! By revisiting the direction you want to go, you have already found your foundation. Use that as a jumping-off point.
Goals are so individualized to your specific situation that it really wouldn’t be helpful for me to list off a bunch of “good” goals because what makes sense for me might not make sense for you!
gain perspective
When I first started paying off my student loans, I was just paying the minimum with the hope of being able to pay them off and move on with my life.
What I didn’t do was take the time that was needed to think about how I would pay them off and by when. Using student loans as an example: if you are paying the set monthly payment and have a standard loan repayment plan, then it will take you 10 YEARS and most likely a ton of interest.
When I finally realized by only paying the minimum monthly payment, which was over $800/month, I would have paid at least 25K in interest. I had to come up with a better plan. With any type of debt, if you are just paying the minimum amount owed each month, you are going to be paying way more in interest over the lifetime of the debt and it will take you that much longer to actually pay it off.
Just saying that your goal is to payoff debt is not enough
Since paying off my student loans was the first financial goal I had set for myself, I did not do this, but I wished I had a more concrete goal…and then I would have been better prepared to set up a concrete plan.
That is why now I have a plan in place for each financial goal that we set.
enter smart goals
As cliche and overdone as they are, SMART goals are the most straightforward way to make sure your goal is the best it can be. What is a SMART goal? Specific. Measurable. Attainable. Relevant. Timely.
- Specific: Which specific category are you targeting? If it’s debt, look back to your list you created of each and every debt you have to get started. But goals aren’t just for debt; create goals for saving money, setting aside money for retirement, etc!
- Measurable: You picked which category you are going to focus on, now this is the amount dedicated to measuring your progress. How much will you payoff or save?
- Attainable: If you say you are going to payoff $20,000 in 6 months, can you actually do that or that more of an idealistic goal? If it’s not possible, then do not set yourself up for failure!
- Relevant: Is this something you actually want to focus on right now? Are you truly ready and able to take the steps necessary to achieve this goal? If not, maybe focus on other financial goals first.
- Timely: By when? Yeah, of course, you want to pay off debt, but by setting a deadline, then you can know when you will say byeeee and move on to the next financial goal you want to reach. Again, when picking the time-frame, don’t choose something that is impossible!
don’t forget about short term financial goals
Long term goals are important and will help set the direction of your finances. But…short term goals (and re-evaluating your progress) are important to help reach those long term goals!
Since I’m a dietitian, I deal with people who want to lose weight. But…when they tell me their weight loss goals, they focus on the bigger picture and say I want to lose 50 pounds. While that might be a great long term goal, it is overwhelming! When you see you have only lost three pounds, you are still so far away from reaching your bigger goal. But this shouldn’t feel like you are still so far away. The same thing applies to financial goals. Break. It. Down.
Now when I break down short term goals, the amount of time it might take to achieve could range from a month to a few years-it’s all relative!
I like to think of short term financial goals as bite-sized pieces to help achieve those long term goals. Back to the weight loss analogy: if you think of that weight loss in five-pound increments, then those initial three pounds lost feels more significant. And you have almost reached your first short term goal.
Depending on the type of goal you are trying to achieve, I like to put short term goals in terms of either monthly, quarterly, or yearly time-frames. Much more achievable. Use the SMART goal format I mentioned to set specifics for what you want to achieve!
Want to know where I’m at? Read about my first quarterly financial goals update!
To get your finances in order, take it step by step
By completing each step in order, you are well on your way! Why am I mentioning this? Well, the next step after creating your financial goals is to set up your budget to make it happen.
What is a financial goal you are going to set for yourself?