Setting financial goals is important for long-term success, security and well-being. Kowing you are going to be secure financially is good for mental health because you can enjoy the things you are doing today, knowing you are in a great place for tomorrow.
You do not want to reach an age where you do not have any money coming in and have little in the way of savings. However, setting financial goals is not all about retirement and there are other targets you could have, such as buying a house. On this page you will learn more about setting financial goals and how to create a roadmap for financial success.
Defining Your Financial Goals
The first step when creating a roadmap for financial success is to define your financial goals. Everyone will have different targets and you must consider what you would like to aim towards in the future. Do you want to build towards your retirement fund? Do you want to pay off a debt? Do you want to get into real estate? These are all examples of financial goals and you should write down a list of your goals.
You can then prioritize your list of financial goals based on what you believe is most important. It is vital you are realistic about what you can achieve and do not go for something that is out of reach. When you have selected your financial goals, break them down into smaller steps and this will make them more manageable. You can split your financial goals into short, medium, and long term goals. A short term goal could be to pay off a high interest debt whereas a long term goal could be to buy a new home.
Asses Your Current Financial Situation
As highlighted above, you must choose financial goals that are realistic and you can do that by assessing your current financial situation. Check your bank accounts to see how much money you have, including any savings accounts. Look at your income and your expenses plus any other financial outgoings you may have during a normal year, such as birthdays and Christmas. People often forget about financial commitments when it comes to birthdays and Christmas, which can total a significant amount of money throughout the year.
You will also have hobbies, such as going to sports games, watching movies, travelling, and online gambling. Some of these may need to be reduced depending on your final goals but in terms of online gambling, using free sweeps coins can be a fantastic alternative to real money online gambling. You can categorize your expenses and set aside funds accordingly.
Create a Budget
Now you know your financial goals, have split them into short, medium, and long terms categories plus assessed your financial situation, you can create a budget.
There is a common rule in finance when it comes to creating a financial goals budget and that is the 50/30/20 rule. It means splitting your income into the three parts, with 50% of your total income going towards necessities, 30% of your income going towards things you want, and 20% of your income going towards savings. You can tweak that model depending on your own circumstances but it gives you an idea of how you can save money based on your financial goals. Having set a budget, which is usually for the period of one month, you can continually monitor the budget and make adjustments when required.
Inflation
When creating a plan for a long term financial goal, you must consider inflation.
In some ways, inflation is like tax but it is not taken out of your paycheck every month. When saving for the future, it is important to account for inflation as accurately as possible. It is always going to be an estimate and no one knows exactly what is going to happen 10 or 20 years from now but inflation will have an impact on the success of your financial goals. The rule of 72 is often used in finance to estimate how long it will be until your money can buy half of what it can by right now.
There are many steps and considerations when creating a roadmap for financial success. You must sit down and carefully consider your goals before assessing your current financial situation and setting a budget to meet your targets.
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