Financial Goal Definitions and Examples: Money 101
Setting financial goals is a very common practice. Everyone wants to do better than they have done before. We all want to have money to spend without worrying about whether our utilities will stay on. We want to tell our kids “Yes” when they ask for things instead of always having to say, “Not this time.” And, of course, we want to live in nice houses and drive cars that we do not have to worry will break down at any minute.
Many people set financial goals, but very few people actually reach those goals. Sometimes this is simply because they do not understand the goals they are setting- they just know it is a goal they “should” reach because that is what someone said. Then, there are some people that simply do not know how to create effective goals or a plan for how to reach them. That’s okay- we’ve got you covered. Below are some very common financial goal definitions and examples, and some tips on how to reach them.
Let’s start our financial goal definitions by understanding the types of goals you can set.
SMART Goals
SMART goals: Smart Measurable Achievable Relevant Time-bound. You have probably heard this term a million times, but there is a reason for that. They actually make reaching goals more attainable. Here’s why:
Goal 1 : I will pay off my debt this year.
Ok, but how much debt? When will you make the payments? Throughout the year or on December 31? How will you know when you have met the goal? This goal is too vague.
Goal 2 : I will pay $20 from each paycheck from January to December toward my debt, using the snowball method to pay them off in order.
This goal is specific enough that you can make moves on it. You know that starting with your first check of the year, you are going to pay $20 on debt. You can go ahead and add that into your budget and list your debts according to your chosen method. Saying you want to pay off debt is more like a dream. Turning that into a SMART goal is more like a plan.
I have heard it suggested that it helps to make your goals emotional, too. For instance, you might add to the debt goal “I am doing this so that I no longer have to feel anxious every time my phone rings from fear that it is a bill collector”. Many times, when you attach emotions to your goals, it is easier to stay motivated.
Long-Term Goals
Most people like to start financial goal definitions by talking about short-term goals, but I have always felt it should be the opposite. I’ll get to why in a minute. For now, let’s talk about long-term goals.
Long-term goals are those that will take more than 10 years to pull off. It’s those big goals, like retiring a billionaire or taking a trip to Paris after your kiddos are grown and out of the home. Maybe it’s paying off your mortgage or having plenty put away for your kids and grandkids.
So, imagine yourself 20 or 30 years from now. If you have nothing holding you back, where will you be? What will you be doing? Where will you be living?
Think even further. At the end of your life, what do you want to know that you accomplished? These are your long-term goals.
Live a Financially Stable Life.
Everything You Need for Your Finances
Midterm Goals
Next on our list of financial goal definitions is midterm goals. Midterm goals are typically those that take three to 10 years to accomplish. Paying off student loans, buying a house, saving for college, and things like that fit into this category.
Short-Term Goals
And our next topic on the financial goal definitions list is short-term goals. These are goals that you can manage quickly, usually within three years. Purchasing a new refrigerator or TV fits in here. Paying off a certain amount of debt, applying for a mortgage, putting away $1,000 in your emergency fund- these are all short-term goals.
Bringing It Together
A moment ago I said that I like to start financial goal definitions with long-term goals, and here’s why: your midterm and short-term goals need to line up with your long-term goals. Sure, you can have extra goals. Having a yearly vacation may not necessarily line up with your long-term goals, but that does not mean you do not add it. However, using your short-term and midterm goals wisely can help you reach your lifelong goals.
Let me show you what I mean. Here’s an example:
Long-term Goal
Let’s say one of your long-term goals is to retire a billionaire.
Midterm Goal
Have all debt paid off and have $5,000 invested in an account with high interest.
Short-term Goal
Make a budget to include debt payments and investment funds. Start investing $20 a week.
From here, you can write a list of tasks you need to complete, such as finding a good investment fund. Your short-term and midterm goals can push you toward your long-term goals.
To make a good plan, start with the long-term goals. Then, write down everything you know you need to do to reach those goals. Next, break it down even farther into the tiniest of tasks you can manage. It may take a few days to decide on an investment account, but you can schedule in 30 minutes or an hour at a time to research one fund. After a week, you will have looked into multiple accounts, and this is a task you can complete while you are waiting at the doctor’s office or on your lunch break.
Once you have a list of teeny-tiny tasks to complete, add them to your calendar, planner, a master task list for the month, or whatever you look at on a regular basis. Treat these tasks as if they are actually important- like a doctor’s appointment or business meeting. Do not consider them to be negotiable or you will never complete them. If you do, a year from now, you will be setting the same exact goals, wondering why you have not made any progress. You have to place importance on your goals if you want to reach them.
More Financial Goal Definitions and Examples
Here we have listed some of the most common financial goals that people set. All of them are excellent goals, but not all of them pertain to every single person. Take a look at these financial goal definitions and examples to see if any line up with your desires in life.
Start Using a Budget
There are many people who avoid making a budget. Some people feel that they are too restrictive. I know some people who say, “I don’t have enough money coming in to pay my bills, so why should I make a budget?” Others don’t want to put the time in. There are many reasons for avoiding a budget, but it is one of the biggest financial mistakes you can make. By making a budget that shows your income and your outgoing amount, many people find money that they did not even know they had. Budgets can put you in the driver’s seat of your financial journey instead of just going along for the ride.
Get Out of Debt
Getting out of debt lands on a lot of people’s goals lists, but many people dread dealing with it. The truth is, though, that making a debt repayment plan can take what seems like an insurmountable goal and make it doable.
Increase Income
Everyone can use more income, but how exactly does one go about getting it without working themselves to death? You might consider opening your own business or asking for a promotion. Take an honest assessment. Do you have the skills necessary to start the business you want or to impress your boss enough to give you that promotion? If not, it’s no biggie. You just need to obtain those skills. There are tons of online classes and certification courses- both free and paid- that can help you gain the necessary skills.
Build an Emergency Fund
This is also referred to as a rainy day fund and everyone needs to have one. Let me tell you, friend, it’s going to rain. The only questions are “When” and “How much?” You know that saying, “When it rains, it pours”? Yeah, that’s kind of how it goes. Bad things tend to happen in clusters. Car trouble, injuries, job loss, sickness, and more have a way of sneaking up on you, and they can throw your whole world off the balance if you are not prepared.
This is where an emergency fund comes in. You cannot stop bad things from happening, but you can minimize their effects on your life. Having money put away for those inevitable times can save you a lot of trouble and stress. The rule of thumb is to have three to six months of living expenses socked away, but some people start with a goal of putting away at least $1,000. Obviously, the more you can have put away, the better.
Start Investing
Investing is scary for a lot of people because it can be confusing. Knowing how to start and where to invest is a big task itself. Finding the money to begin investing has its own challenges. Fortunately, the internet and mobile apps have made investing a lot simpler and a lot cheaper to start. With apps like Acorns and Stash, you can start investing with a few dollars and set them up to make automatic withdrawals from your account on payday. Even investing firms like Fidelity are lowering their initial investment requirements. With all of these low-cost options available at our fingertips, there is no reason not to invest.
Plan for Retirement
Unless you want to work for the rest of your life, it is important to save for retirement. Relying on social security is not a retirement plan. The amount you need to save really depends on the lifestyle that you are hoping to live. It was once recommended to have $1 million saved for retirement, but with the rising cost of everything, that probably will not be enough. Investing in retirement accounts is a great idea, but you should probably look into a high-yield interest-bearing accounts that will continue to make you money even after retirement.
Improve Credit
Good credit is an important factor in many financial moves, such as buying a house or car. While paying off debts is an important part of improving your credit, there is more to it. Opening a new account or two and paying down credit card balances make a difference, too. A successful credit journey is made up of many tiny steps, so every move you make has the potential to improve your score.
Be Better at Managing Money
Better money management should be on everyone’s list of goals- unless you are a billionaire with zero debt and plenty of money socked away. For the rest of us, there is always room for improvement. There are many small steps you can take that will make a big difference. Pay your bills by the due date to avoid late fees. Don’t spend more than you make. Save as much as you can. Get rid of habits that are draining your account and giving you nothing in return. Start investing so that your money starts working for you.
Start a Business
Many people want to start their own business, and this is a great move to make. Once upon a time, you had to have the money for a brick-and-mortar location and physical products. Now, we have the internet and digital products seem to be where it is at. What does this mean for aspiring business owners? You no longer need great credit and capital to get started. A computer, internet, and a few other items can get your business off the ground. You can always expand and become a physical location down the road, but you can actually meet the goal of starting your business pretty quickly.
Save for College
We all want to give our kids a chance in life, and sending them to college seems like the way to do it. This goal is not cheap, though, and it is not going to get any cheaper. College tuition can be anywhere from a few thousand dollars a year to tens of thousands, and the cost rises more than 2 percent every year. It’s hard to say how much you will need exactly until your kids choose a college, but there are calculators that help you estimate the cost. Choosing a 529 or a mutual fund that earns good interest can definitely help you. You might also consider looking into scholarship programs and grants.
Buy a Home
Buying a home is such a large task that requires so many moving parts. You need to make sure your credit is up to pay and find a good mortgage. You need to save for a down payment, the amount of which varies according to the mortgage you accept, your credit, and the home you choose to buy. There are closing costs and fees to worry about. To start off on a good foot, check your credit, determine the amount you feel comfortable paying each month and go speak to a lender. You might not be approved yet, but a consultation can often tell you what you need to work on.
Conclusion
By taking the time to learn and understand financial goal definitions, you are pushing yourself closer to success. There is still work to be done, but this is an excellent starting point. Take some time to really sit down and consider your goals. Do not set a goal just because society says you should. If a goal means nothing to you, you will not be motivated to reach it.
That is one reason understanding financial goal definitions is so important- it can help you choose goals that you actually care about. Be sure that you choose goals you feel motivated to work on and be sure to be realistic as you set them. If you need some extra accountability, recruit a friend. Have a monthly check-in with one another to see how you are doing. You might also consider downloading one of the dozens of goal tracking apps on your phone.