Long-Term Financial Goals for the Planning Type
Setting long-term financial goals is a very wise move to make. They can help give your life direction and help motivate you to push through work every single day. While there is no one approach to setting and accomplish your long-term goals, there are some steps you can follow to give you a better chance at success.
What are Long-term Financial Goals?
Long-term financial goals are goals that take more than five years to accomplish. They are goals that require more time and commitment than your other goals. Many of them are giant leaps toward lifelong goals, and sometimes they are lifelong goals.
How to Set Long-Term Financial Goals?
Setting long-term financial goals should start with you asking yourself, “What do I want out of life? What do I want to accomplish before I die? What do I want to accomplish before I retire? What do I want to do while I am retired? Where do I want to be in 10 years? In 20 years? In 30 years?”
If you can answer these questions, you have an excellent start to goal setting. Before you go any farther, take out a sheet of paper, and really consider these questions. Do not worry about it being perfect right now. Just let your mind wander and imagine for the moment- you will have time to revise anything you need to revise later.
If you have a family or a significant other, it is wise to include them. Have them answer the same questions on their own paper. Later when you are putting your goals in order and into a plan, you can take everyone’s into consideration.
Just in case you need some help brainstorming, here are some common financial goals:
To live wealthy- or comfortably- in retirement
To pay off debt
To buy a house
To pay off a mortgage
To start a business
To pay for kids’ college education
To travel the world
You can use the same ones if they suit your desires or you can be completely unique. If you need to, take a few days to think about your long-term financial goals, that is okay. It is best to get as many down on paper as you can before you start making plans so you have less to change later.
Take a notebook around with you for a few days, a week, or even a month, and jot down anything that comes to mind. Once you feel like you have exhausted your brain on the topic, move onto the next step. Don’t worry if you feel like you have left something out because you can add later when they come to mind.
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Prioritizing Your Long-Term Financial Goals
Next, we are going to take a look at your goals and decide where to start. Before we do that, though, it is important to decide if all of the things you wrote down are actually things you want. Sometimes, we set goals simply because they are things we have been told we “should” do. Sometimes, we add things just because they sound good at the moment.
Before you set an actual plan with your goals, you need to purge your list. Get rid of the things that really do not matter to you. For instance, if you wrote on your list that you want to own a purple panda, there is a good chance that your mind was just being imaginative. Unless you really do want that purple panda- that I am pretty sure does not exist- take it off your list. Take off anything that really does not mean something to you.
After you have purged your list down to only what you want there, it is time to prioritize. This can be a little tricky as everyone’s goals are different, but I am going to do the best that I can to help you figure it out. We’ll work through a couple of examples so that you can get the idea.
Example 1
Let’s say you have the following goals: build a house, pay of debt, retire wealthy.
Most lists are much longer, but we will keep it short for the sake of the example. Looking at these goals, you need to consider what each requires. In order to buy a house, you need to qualify for a mortgage, so you need your credit to be in good shape.
Saving for retirement is something that takes time to do. It will not be done by next week, so you have more time to work. Of course, the amount of time depends on your age and when you hope to retire. And then paying off debt means that you need enough money to do so.
Don’t Forget to Prioritize
Considering what each requires, paying off debt should definitely be one of the top priorities. Once you pay off some or all of your debt, your credit score should improve making it easier for you to qualify for a mortgage. At the same time, if you bought a house first, you probably would not have enough money left over to pay off debt.
Retirement is a little different. As stated earlier, you have a while to save for retirement. You should definitely go ahead and start as soon as possible, but you do not have to put so much away yet. Just get your retirement fund started and deposit what you can into it until you pay off your debt. Then, as you have more money freed up, you can increase your retirement fund deposits.
On the other hand, if your debt is low enough that you could pay it off in a month or two, you could just put all your money toward that immediately and then start saving for retirement as soon as you are done. This is something you will need to think through before budgeting for your long-term financial goals.
Example 2
Sometimes, people want to pay off their mortgage and other debt at the same time. While you can do this, it will not get you quick progress because everything will be crawling at a snail’s pace. It is better to be more aggressive in some areas and less in others.
Mortgage or Smaller Debts First?
Consider this: Your mortgage is probably the highest debt you have and it is going to take some time to pay it off. Even paying extra on it, it will take years and years to pay it off. Other debts are usually smaller and probably affect your credit score in a much more negative way.
However, if you improve your credit score, there is a good chance that you can refinance your mortgage for a longer repayment term and lower interest rate. The best option here is usually to pay off other smaller debts first, and then put the money you were paying on other debts toward your mortgage.
Here is a little tip for you concerning your mortgage: If you pay your mortgage every two weeks instead of once per month, you make an entire extra payment each year. So, if your mortgage payment is $500 per month, pay $250 every two weeks instead. This will shave years off of your total mortgage.
Example 3
What if one of your goals is to save for retirement and another is to save for your kids’ college funds? Unless you had your kids very late in life, they are probably going off to school before you retire. In this case, it would make sense to start saving for both but do so more aggressively with the college funds. After you have saved enough, start putting more toward retirement.
With college expenses, though, it is important to know that your pockets do not have to be the only way to cover them. Long before your kids’ senior years in high school, start looking into grants and scholarships. They can- at the very least- minimize what you need to pay for.
I hope that I have been able to portray how to choose which goals to work on first. If you are still trying to decide, you might consider asking a wise friend or a financial advisor to help you think it through. Sometimes just talking it out will help you see things you might have overlooked.
SMART Long-Term Financial Goals
Once you have purged your list down to only long-term financial goals you really want to meet and chosen the order in which to do them, it is time for the next step. We are going to take those vague goals and turn them into statements that you can put to work. If you want to create good financial goals that you can actually accomplish, you need to turn them into SMART goals, which means:
Specific/Simple
It needs to be clear and specific. You can usually do this by answering as many of the “W” questions as possible: What exactly do I hope to accomplish? Why is this important to me? Where will it happen? Who will be working with me, if anyone?
Measurable
This is where you get clear on how you know you will reach your goal. For instance, in the case of debt, how much debt do you want to pay off?
Achievable
It is great to push yourself, but your goal needs to be achievable. Going to the moon is a great goal if you can become an astronaut or you have a friend that has a secret spaceship. Otherwise, it probably will not happen. Push yourself, but do not set your goal so high that you will be disappointed.
Additionally, be sure that your goals are things that you can be in charge of. For instance, you might get the credentials and the training you need that qualifies you for a certain job, but that does not mean your boss will choose you over all of the other candidates. This means that making your goal a specific promotion within a specific company may not work out for you. However, you can make your goal be for you to get the certification and training, then apply for better positions at X, Y and Z companies.
Relevant
This goes back to something we talked about earlier: Is this a goal that really means something to you? Having a goal that is very personal to you will motivate you on the tough days and keep you pushing toward the finish line.
You should also double-check that you are at a good point in your life to work on this goal. There is nothing wrong with wanting to get that certification, but is it something you can currently fit into your life without moving other stuff around? If not, you either need to put this goal on hold or decide what else in your life to put to the side for now.
Time-Based
When do you want to accomplish this goal? Setting a specific date is much more effective than saying that “someday” you will do it. You need a specific date. As you set this date, remember to take into account the priorities you chose earlier. There may be a goal or two that you need to put on hold for a year or longer. Start with your top priorities, and build up from there.
Take each of your long-term financial goals and turn them into SMART goals and “I will” statements. Here is an example: Instead of saying, “I want to buy a house”, say, “By December 31, 2020, I will have my credit score up to 700, have a $15,000 down payment saved, and have applied for a mortgage loan.” The second statement makes it so much easier to make an actual plan, which you will see in the next step.
Create Your Road Map
Okay, you now have a list of SMART long-term financial goals, so you know what you want to do, when you want to do it, and how you will know when you have done it. Now, let’s turn this into a road map that you can easily follow. Start by breaking those big, long-term financial goals down into teeny, tiny bite-size steps.
Let’s take that 700 credit score goal and turn it into smaller steps. These steps might be:
Get a copy of my credit report and check my current score
Dispute any incorrect items
Put the remainder of debts in order from smallest to largest
Calculate the total debt I need to pay off and divide it by the number of months I have left to get the amount I need to pay monthly
There are more steps, and the steps here could even be broken down smaller if you need them to be. This, though, is a good start. Make a list of what you need to do for each goal.
Next, take out your planner and mark the dates that you want the goal completed by. After you have those in, mark each of the steps down on the days leading up to that date. Treat those like doctor’s appointments or very important business calls. Do everything you can to complete the steps on these dates. Be firm with yourself when it comes to completing these tasks.
At the same time, it is important that you remain flexible. You may look at these steps you have written down and realized that it is not plausible for you to complete by that date. For instance, saving $15,000 between now and December 31 of this year would mean saving about $1,667 per month. For me, that would not be possible, so I would have to adapt my goal in some way. I might need to give myself longer or choose to borrow more.
As you move through your goals and your road map, there may be a lot of changes you have to make. In three years, you might decide you want to live in Paris instead of the United States. Or you may end up having a new baby that you need to start saving for. If so, you will have to adapt, and that is okay. You want to be flexible enough that you can change those goals and any steps you need to take.
Set Your Budget
Now, you need to decide where the money will come from to fund your long-term financial goals. Is there already enough money left in your budget that you can allocate to your goals? For most people, the answer is probably “No”, which just means you have a little work ahead of you.
Take a look at your current budget. What can be changed or moved around? Is there anything you can give up or cut back on to make space in your budget? Could you give up your morning latte one day a week or start working out at home instead of paying gym fees?
If you absolutely cannot find the space in your budget, you may need to find a second source of income. Otherwise, you will need to change your goal date to give yourself some extra time. Either way, start budgeting for your goals now so that you can accomplish them.
Find a Place to Stash Your Cash
After you have finished all of your planning, you need to make an important decision: Where will you stash the cash for your goals? Will you use your savings account, a mutual fund, the stock market, or under your mattress?
Make this decision as soon as possible. Then, set up automation by having some of your direct deposit go straight to that fund or having the money transferred from your checking once a month. Setting it all up now will make it easier to actually start saving for those goals.
Conclusion
If you have not yet set long-term financial goals, now is as good a time to start as any. Take some time to sit down and really consider what you want out of your financial life. And then, make a plan to get you where you want to go.