Dealing with your finances may currently be a hassle, but it’s still important to consider long-term financial goals. Financial planning can help you obtain financial independence, grow wealth, and achieve significant milestones. While the future seems far away, it will inevitably arrive. Make the most of your income now to reap the rewards later! Learn how to set short and long-term financial goals below!
What Are the 3 Types of Financial Goals?
A financial goal can help you make the most of your hard-earned money. Anyone can set and achieve financial goals as long as they commit to improving their financial health. There are three types of financial goals: short-term, mid-term, and long-term.
- Short-Term Financial Goals – Financial goals that you can accomplish within one year. For example, when you save to buy a new car or pay down credit card debt.
- Mid-Term Financial Goals – Financial goals that you can accomplish within one to five years, such as becoming debt-free or saving for a wedding.
- Long-Term Financial Goals – Financial goals that take longer than five years to accomplish. Long-term goals include retirement planning and saving for your child’s education.
Why Are Long-Term Financial Goals Important?
Many people tend to focus solely on short-term financial goals because they affect their immediate situation. But not planning for your financial future can leave you unprepared for unexpected events. You may also deny yourself the ability to achieve certain milestones, such as buying a home or relaxing once you reach retirement age.
Suppose you only focus on short-term financial goals throughout your life. You get by pretty well and don’t see a reason to start a savings account. But one day, your car may unexpectedly require costly repairs due to a damaged suspension. You may find yourself in need of immediate car repairs with no money. In that instance, you may have to resort to taking out fast cash loans online.
Taking out loans can hinder your finances and complicate your life. While loans are convenient, they end up costing hundreds or thousands of dollars in interest charges! Essentially, you are paying money for not saving money. But by putting aside a few dollars every month, you can grow a sizable emergency fund in no time!
How To Secure Your Financial Future
There are various ways to secure your financial future, from paying off existing debt to building a retirement savings account. Learn how setting specific personal finance goals can help you become financially stable below.
Pay Off Your Existing Debt
Almost everyone has some debt to their name, but having too much can hinder your financial success. If you have credit card or student loan debt, you lose money yearly. These forms of debt tend to have high-interest charges, which means you accrue additional debt by carrying a balance. It’s cheaper to pay off existing debt early, but doing so requires an aggressive plan of action.
Suppose you have $1,000 in credit card debt. If your APR is 29% and you reliably pay $50 every month, you will end up paying $344 in interest charges. That is a serious chunk of change. The money you spend on interest fees could have gone toward utility bills or mortgage payments.
Start an Emergency Fund
An emergency fund is an essential financial advantage that everyone can benefit from. Anyone is capable of saving money. You can save money fast despite a low income as long as you plan accordingly. Saving money helps you avoid taking out high-interest loans during an emergency. High-interest charges can add up to a significant amount, but having money to fall back on can prevent you from losing hundreds of dollars!
Invest Your Money
Investing your money is highly beneficial because you can build wealth from your hard-earned cash. Investing does not require immense financial knowledge, but it helps to know the basics of financial literacy. Once you have established a savings account, you can start thinking about how best to grow your money. You can look into bonds, stocks, or Treasury Inflation-Protected Securities (TIPS). Remember that there are no risk-free investments, only low-risk investments.
Live Within Your Means
You may have heard the expression “live within your means.” What does this mean? When people live within their means, they do not spend more money than they earn. You can save more money by limiting your monthly expenses. But you set yourself up for financial risk when you live a lavish lifestyle. Everyone wants pleasant experiences and quality items, but you should not rely on loans or credit cards to afford the life you want. Living at or below your means can make achieving important long-term financial goals significantly easier.
Prioritize Needs Over Wants
Prioritizing what you need over what you want can help you save money and achieve financial goals. Impulse shopping can put a massive dent in your wallet and derail your financial planning. Many people impulse shop due to the euphoria of instant gratification. But remember that an emotional boost from impulse buying does not last.
How To Start an Emergency Fund From Zero in 4 Steps
Everyone should have an emergency fund to afford long-term financial goals and help cover unexpected expenses. Don’t have a lot of money to save? You can still budget money on a low income to save big! Saving is more about long-term commitment than the amount you deposit. Setting a financial goal and achieving it can significantly boost your confidence, which can improve your overall quality of life.
Step 1: Budget Your Income and Expenses
Budgeting your income and expenses is essential to know how much you can afford to stash away in an emergency fund. To establish a monthly budget, you need to know the following information:
- How much do you bring home every month after taxes?
- How much are your monthly living expenses?
- How much do you spend on unnecessary expenses?
Knowing the amount you have to spend each month can make it easier to save money. Different budget methods are available, but the 50/30/20 budget rule is the easiest to start with. This budget rule dictates that 50% of your income should be spent on necessities, 30% on discretionary expenses, and 20% on savings. Suppose your living expenses cost more than 50% of your income. In that case, you can adjust the percentages to fit your lifestyle better. The key is to develop good spending habits.
Step 2: Choose a Savings Account
Once you know how much you can spare each month, you need to decide on a savings account. Various financial institutions offer savings accounts, but the benefits and interest rates differ. Consider how much you want to invest as an initial deposit because some banks and credit unions have specific requirements. In addition, ask about fees, minimum balance requirements, and accessibility.
To open a savings account, you will generally need to provide the following:
- Driver’s license, state ID, or U.S. passport
- Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN)
- Basic personal information (name, date of birth, address, etc.)
- Phone number and email address
- Bank account and routing numbers (for an initial deposit)
Step 3: Decide on a Contribution Amount
Consider how much money you want to save each month after your savings account is set up. Consistent deposits will help you grow an emergency fund. Don’t feel compelled to save a lot of money right away if you cannot maintain that monthly amount. The amount you deposit is important, but it’s more critical to maintain a consistent schedule. Start with a low amount you can increase over time to avoid overwhelming yourself.
Step 4: Achieve Your Savings Goals
Once you start making contributions to an emergency fund, ensure you keep your savings intact! It’s tempting to spend readily available money but remember your financial goals. If you want to buy your first home, keep saving to afford enough money for a down payment. Or use the money to pay off any financial obligations that are weighing you down. Once you achieve your desired balance, you can reap the benefits of your hard work! Then continue saving for other short or long-term goals!
The Bottom Line: Long-Term Financial Goals
It’s essential for consumers to have short and long-term financial goals. While the future seems a lifetime away, it will eventually catch up to you. You will be thankful for planning ahead.
You do not need to earn a substantial income to start saving money or afford significant purchases. All you need to do is closely examine your income and budget to know how much you can afford to set aside each month. You secure your financial future when you commit to saving a small portion of your income every month. A savings account with three to six months’ worth of expenses will provide a financial cushion for unexpected emergencies. But continuing to save will ensure you can fully relax once you reach retirement age! Remember, the best investment choice is to invest in yourself!
And if you want to learn more about how to pay off debt vs saving money, check out the rest of our blogs!