Financial planning typically starts with setting some goals. Do you want to save money for a down payment on a car? Are you hoping to bump your credit score a few points?
No matter how small or large the goal, the steps for getting there look the same. You should start by defining both short-term and long-term goals, prioritizing them, and then breaking them down into attainable milestones.
To help you get started, here are some financial planning tips to consider for reaching your next financial achievement.
Define your short-term financial goals
Of all the things you want to do with your money, which are things you can do in three to six months or even a year? These are your short-term financial goals.
Short terms goals include things like working to raise your credit score a few points or saving enough money to pay for your textbooks this fall. Any solid money plan should include a good number of short-term goals to help spur you on and ensure that you're not mishandling your money as you work toward achieving your long-term financial goals.
Define your long-term financial goals
Will your financial goal take you longer than a year to achieve? If you're hoping to save enough money for a down payment on a house or put away enough for retirement, these could be considered long-term goals. Long-term goals can span many years, so even these goals can be broken down into two buckets — those you can attain within three to 10 years and those that will take even longer.
For long-term goals, it's important to identify them early so you can establish a long-term strategy to keep you on track.
How to achieve your financial goals
Once you've written your goals down, you can start the action items needed to make them come true!
- Prioritize your short-term and long-term financial goals
You can't do everything all at once. Even if you're able to put a bit of money each month toward every financial goal you have, you could soon run out of cash, and you may end up not really funding anything fully. Instead, pick two to three short-term goals and one to two long-term goals to focus on now. You can pick these based on your personal preferences, your family responsibilities, your happiness, or your health.
For example, if you have a baby on the way, saving for the down payment for a larger vehicle may have to come before saving up for a better lawn mower. Your priorities will be based on your personal needs and wants and likely shouldn't be set by anyone else.
- Set milestones
Now that you have a few short-term and long-term goals, you have to make a plan to tackle them. Setting milestones does two things: It gives you a step-by-step action plan for achieving your goals, and it tells you if you're on track toward meeting them. For example, let's say you need to save $1,000 to fund something you need in six months. If you set up four milestones of $250 each and set each of them to happen at the end of 45 days, you could have the full amount saved by the end of five months, well before you need it.
If you managed to miss your first milestone by a bit, you could adjust the remaining milestones to ensure you ultimately stay on track.
Different financial goals, same path
It's easy to become overwhelmed by large financial goals. For example, if you have a financial planning target of saving $20,000 for a house down payment, that may seem impossible at the moment. You may even decide to set some of your short-term goals to support that long-term aim. Working to get a small raise at work could be a helpful short-term goal. Another short-term goal could be to pay down any high-interest debt you may have that could be eating away at the amount you can save for your down payment.
By pairing your long-term goals with some short-term ones that support them, you can stay on track for success with all of them. As life happens and you have to adjust, you can do so with confidence, knowing that you're ultimately making strides toward achieving more financial freedom.