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A majority of Americans are saving for retirement, but at least 77.02% of the savings accounts have less than $15,000. This is according to a report by Motley Fool, which shows 21.99% of savings accounts in the US have a balance of $1000 to $5000. On either end of the scale, 2.97% of savings accounts have zero balance, while only 4.38% of savings accounts held more than $100,000.
Having financial goals is extremely important. But you’re going to need a long-term financial plan in order to make sure you can reach those goals. This type of plan is going to help you figure out how to process each step you need to make in your life. It’s also going to help you avoid the fear response that can hold you back.
Of course, the best thing you can do is work with a financial investor or advisor to help you understand what your plan really is and then you can start working toward the things that really matter to you. That way, you’re going to be in charge of your money instead of the other way around.
Why Do We Need Goals?
There are actually a number of different types of goals and a number of reasons to start on them as early as possible, but we’re going to take a look at what you need to know about why you’re starting as quickly as you can.
- Create a Realistic Plan – once you have goals you can set up a plan that actually works to get you to those goals.
- Energize Yourself – you can start feeling really energized about the prospects when you actually achieve your goal, which makes you more motivated to keep working.
- Track Your Progress – when you have a goal you can see just how far you have to go in order to reach it and that’s going to keep you moving.
- Focus Your Attention – You’ll be able to see what it is that you really want and then you can put all of your attention on that one thing.
- Prioritize Tasks – When you set your goals you’re going to be prioritizing the things that you want most and that forces you to make choices.
- Reduce Your Chance of Failing – If you have a goal you’re going to be less likely to fail because you know what it’s going to take in order to actually achieve that goal.
What you should absolutely know is that you’re going to have more money at the end the sooner you start. That’s because interest is going to compound over time and you want to make sure that you’re getting as much as you can.
When Should Financial Goals Be Set?
The earlier financial goals are set, the better. This will ensure you begin to save and have goals in mind from a young age. Remember that if you want to reach certain goals by the age of 30, you will need to start preparing for them when you’re 25 or younger.
When deciding when to set financial goals, consider at what age you want them to be complete. Then, you can start planning for their years ahead of time.
Determine Your Goals – And Prioritize Them
You’ll need to take a little bit of time to determine just what your goals are and you want to have short-term, mid-term and long-term goals. These might be things like having a new house, starting a college account, setting up retirement funds and more.
It’s important that you and your spouse both agree on the goals that you’re going to set and then agree on how much money it’s going to take for you to actually achieve those goals. From there, you’ll be able to figure out how you’re going to get to that amount of money and how you’re going to start the saving process.
You’ll also need to prioritize different goals that you have (since you’ll likely have more than just one). You need to look at the short-term goals first and then figure out how much you’re going to benefit by saving for those goals and getting started as early as you possibly can.
If you’re not quite sure how to get started or what you should do take a look at these tips and see how you can use them to set up the right goals and make sure that you’re on the right path to get where you want to be.
How Do Values Influence Financial Goals?
Goals grow out of a person’s values. Some goals that have large effects on finances include honesty, integrity, social status, power, achievement, and security. These values will also affect your career goals which will affect your financial goals.
Your values will affect how you spend money and how you save your money for the future. Establishing good goals will ensure you are wise with your money.
1. Short Term Goals
First, set up some short term goals that are going to give you a little bit more motivation. These are going to be the easy things that you can achieve and they’re going to happen in a short amount of time. That can help you to feel a little more motivated about achieving some of those larger goals where you’re not going to start to realize the benefits right away.
Have a Budget
A budget is going to make a big difference in your success, even if it seems like a bit of a drag when you’re getting started. For those who struggle with a budget, it doesn’t actually have to be as difficult as you might think.
You need to know where you can spend and where you need to save and you definitely need to know what your current habits are. This can help you to make more money and to figure out where you can cut back.
It can actually make a huge difference in the way that you’re going about everything in your life and it’s a great way to make sure that you’re saving for the things that really matter to you, like your own retirement or that huge trip you’ve been dreaming about. You want to make sure that you know how much you need to save and then use your budget to help you do it.
Pay Your Debts
Paying off debts is going to be a great short-term goal as well and it can be related to any type of credit that you might have. The key is to try and make large payments where you can to pay off debt as quickly as possible.
For some, this means making the large payment on the card or account that has the highest interest rate (debt avalanche). Once that is paid off completely you move the large payment to the next highest interest rate. Over time, this method is the one that’s going to save you the most money.
The other method is to start with the smallest debt and pay as much as you possibly can toward that (debt snowball). Then, you’ll pay off the next smallest debt and so on. You work your way up by paying off small debts to give yourself a motivational boost. This is going to help you feel a little bit better about making those payments and you’ll see the results and the improvements a whole lot faster.
Start an Emergency Fund
You may want to start working toward a full six months’ worth of emergency expenses just in case something unexpected happens.
This is the money that’s going to protect you in case you lose your job or have a medical emergency. You want to make sure this is in place so you don’t have to borrow from your retirement accounts in case of a problem.
Keep in mind that if you start spending out of this account you should immediately start working on building it right back up. That way, if you have another emergency, you have a fund to fall back on.
2. Set Long-Term Goals
The next set of goals you want to look at are the long-term ones. These are actually going to take a bit of work to achieve and you’re going to have to put some time and effort into them.
You’re going to need to really manage your spending and your saving in order to get here and it can be hard to do. In fact, a lot of people don’t make it to their long-term goals because they just can’t stick with it. But if you can, these are some goals to look at.
Save For Retirement
One of the biggest things you want to do is start retirement savings so that when you do retire you can enjoy your life.
When it comes to retirement savings plans, 55% of American adults save their money using a regular saving account, according to T. Rowe Price. 401(k) plan closely follows by a margin of 54% of the respondents. On the bottom, 1% of those who participated in the survey cited other types of the saving plan. However, this was a small amount compared to the Annuity or life insurance policy which tied at 17% with a taxable investment account.
Start by figuring out just how much money you’d actually like to have and then work your way backward so you know what you should be putting away in order to get there. Also, do your best to boost your retirement savings along the way.
You could decide that you want to put away $10,000 a year and that means about $834 a month in savings. This gives you a specific amount to work toward so you don’t have to worry about falling behind.
Save For a House
You may want to save up money to put toward a down payment on a house. If that’s the case consider the amount you’d like to be able to spend on a house. It’s a good idea to have at least 20% of that amount ready to put down.
So, if the house you’re looking at is $300,000 you want to make sure you have $60,000 put away for a down payment. Keep in mind you’ll also need additional costs like closing and other fees. But if you have that down payment ready you’re going to immediately have some equity built into your house and that’s definitely worth it.
In a survey conducted by Point2 Homes in 2020 about the saving behavior of Millennials, 40% said they were saving less than 10% of their income on buying a home. In total, people saving below 20% of their income accounted for 72% of the respondents. Those saving over 50% of their income accounted for 7% of the respondents.
Save for College
If you have children you might want to start saving to help them pay for college and reduce their student loan debt. That’s something you want to start doing as early as you can. You want to make sure you have a good amount for each child that you have and that you’re going to reach the goals that you set for yourself.
Maybe you want to save $3,000 a year or maybe you want to put away $5,000 for all of your children. Whatever you’re saving, make sure that you know what it translates to every month.
According to a survey by Fidelity Institutional Asset Management, the number of parents using a college savings account has increased by 16% between 2007 and 2016. In 2007, 26% of parents with kids expected to join college used a college savings fee against 41% of parents who used a dedicated savings account in 2020. The levels have remained relatively consistent between 2016 and 2020.
How To Stick And Achieve Your Financial Goals?
For a lot of people, it can be difficult to make these plans and ideas stick and they find themselves falling off the wagon when it comes to keeping their financial goals. That’s where these tips can help.
Know the Time Frame
Know just how long you actually have to reach the goal you want. You might consider it a short-term goal or a long-term goal or a mid-term goal. But knowing which area it fits into helps you make a plan.
A short-term goal is something that you can expect to achieve in up to 3 years (but no more than this). Usually, they’re goals that you’ll achieve in a year or less. These could be things like taking a vacation or paying off some smaller debts. The money for these should go in a savings account or somewhere you can get the money out quickly without having to pay a penalty.
Long-term goals are the ones that are going to take you at least 7 years or more to actually get to. This is where you’ll put retirement goals and college savings (depending on how old your children are). You’re going to want to put this money away in investment vehicles that could earn you a good amount of return because you have time for them to adjust.
Don’t be afraid to make changes over time to the goals that you’ve set.
If you have a set idea of how much to save each month and you’re not hitting it then start looking for ways you can change up your spending or your income. You may need to change the goal if there’s just no way that you can consistently hit what you need.
Follow Your Progress & Write it Down
You should always know just how you’re doing when it comes to your goals. You want to know how much you’re getting in the way or returns and whether you’re actually reaching the goal that you want in the time frame that you want.
If you have an advisor or a professional to help you then you want to know how you can check in with them to see your progress. Also, make sure that you’re monitoring things for yourself frequently and that you know whether you need to change things.
When you write down your goals it actually makes them easier for you to achieve. So, it doesn’t matter where you write it or how you write it out. The important thing is just that you put it all down and make sure you can see it.
Keep it SMART
A SMART goal is one that is Specific, Measurable, Attainable, Relevant and Time-Bound.
Setting SMART goals allows you to clarify your ideas, focus your efforts, make better use of your time and resources, and increase your chances of achieving your life goals. SMART goals are defined by a set of criteria that ensures your objectives are attainable within a specific time frame.
- Specific – Your goal should be specific enough that you can look at it and immediately know what you need to do to achieve it.
- Measurable – You should know exactly what you’re planning to achieve (i.e. $1 million in retirement, $10,000 towards college education, etc.)
- Attainable – You should be realistic about your goals. Even though you shouldn’t be afraid to push yourself you want to make sure you’re not setting yourself up for failure.
- Relevant – It needs to be related to the things that you actually want for your life, so make sure that you’re paying attention to what you really want and what other people might want.
- Time-Bound – Set a time limit for when the goal needs to be achieved by. This will help you stick to your plans and actually do the savings you need.
Working through each of those five components to create a measurable goal that includes exactly what needs to be accomplished and when, as well as how you'll know when you're successful, is what writing a SMART goal entails. This method eliminates generalizations and guesswork, establishes a clear timeline, and makes tracking progress and identifying missed milestones much easier.
There are so many different ways that you can use technology to your advantage, so make sure you’re looking into systems that will help you with budgeting or help you monitor your accounts.
There are all kinds of apps and programs that can take care of these things for you.
What About Early Retirement?
Finally, we would like to share with you 2 important tips that can help you to achieve your goals, especially when talking about early retirement. They were written by Semi-Retire Plan, which is dedicated to helping you prepare to leave your full-time job as soon as possible.
Tie Your Financial Goals To Your Personal Core Values
Identifying your personal core values is the best way to start your financial planning. This will ensure that your financial progress is meaningful to you and your family.
For example, you can tie your debt repayment goals to your future giving plans. If you're passionate about a certain non-profit cause, paying off your debt can free up your cash flow and you could give more to that cause in the future!
As another example, if spending time with your family is important to you, you can tie that to your financial goal to save for a down payment. Once you're able to buy the house, you could host more family events!
Identifying your values and long-term life goals also help you to pursue the right financial goals – ones that are in line with your other future plans and desires.
Run a “Retirement Simulation”
Test run your retirement before you get there with a mini/semi-retirement period can be a great solution. I strongly encourage readers to take a mini retirement or semi-retirement before retiring completely.
This approach has several benefits: it makes the transition into retirement less abrupt, it can extend your working years in a non-stressful way (therefore increasing your savings when you do reach retirement), and it can give you a blueprint for how to spend your time when you do choose to retire fully.
Many people get burned out during consecutive decades of working, and a mini or semi-retirement period is a great way to address that problem.
One of the top goals to have before you turn 30 is to pay off all your debt. Being free of debt can change the way you live your life and can ensure you don’t have as many things stressing you as you grow older.
Creating a monthly budget plan and stopping impulse spending is also extremely important. Most financial advisors also say you should have emergency savings for 6 months by the time you turn 30.
By the time you reach 40, you should be starting to save for retirement. You should also have some investments and be seeking investment guidance from professionals, so you know you are putting your money in the right place.
If you don’t already have a home, you should be saving for a home or trying to secure a home for your future. Without rental payments or mortgages, you will be able to use your money towards other things and invest more of your paychecks.
Financial goals are personal or big picture objectives you set for how you’ll save and spend money. Financial goals can be short-term or long-term. It’s easier to identify your goals when you sit down and make a physical record of them. Knowing them in advance will help you know when you are getting close to your goals.
Some examples of financial goals include saving for tuition, paying off a mortgage, investing for retirement, or saving enough to buy a car without getting a loan.
A good example of a financial goal depends on what you want your future to look like. Since most people want to own a house at some point, it would be a good financial goal to pay off your mortgage or to eventually stop renting and take steps forward to own your own home.
If you plan to have children, it would be a good goal to save for their tuition, so when they get older, they don’t have to worry about taking out student loans or being stressed about how they will afford tuition.
Short-term financial goals are goals you want to complete in the near future. They don’t include saving for a house or car. They are usually smaller expenses such as saving for a wedding, saving to travel somewhere, paying off all your credit cards, or making high payments towards student loans.
Short-term financial goals will take just as much discipline as long-term financial goals. Make sure you keep a budget and you know where you are spending your money.