Setting Realistic Financial Goals
Financial goals are important to have. They’ll help keep you comfortable during everyday life and make sure that you’re setting yourself up for success in the future. Unfortunately, most financial goals fail. The primary reason for this is that they’re unrealistic. You can’t save up $5,000 in 2 months if you’re earning $4,000/month and spending $3,000/month. It’s literally impossible. Goals need to be attainable for you to reach them, so here are a few tips at how to set realistic goals.
1. Avoid Comparison, Focus on Yourself
One of the main reasons that goals fail is because people have a habit of comparing themselves to others instead of focusing on individual achievement. The same concept applies to financial goals. Social media has made it easier than ever to compare our lives to others, but more often than not it’s an unrealistic comparison. People who post their achievements don’t show their struggles and this causes discouragement for those that are working hard and not seeing results.
Everyone has a different life and you should outline your own finances and set your own goals. When you do this, it’s much easier to celebrate small victories and stay on track. Use what you have and work with that.
2. Don’t Go Overboard
Similarly, don’t go overboard with your financial goals. Be realistic in what you can achieve so that you don’t set yourself up for failure. If you set unrealistic goals you’re not going to reach them and it’s going to be more difficult to set new goals in the future. Instead, aim to create small, realistic goals that are well within reach. Use your budget to see what you can and can’t achieve based on your current income and areas where you can cut spending. Once you achieve your financial goals, you’ll be more motivated to set new ones and continue working toward them. Remember, even small victories add up to success.
3. Be SMART
To further help you reach your goals, follow the SMART model. Make sure your goals are specific, measurable, achievable, realistic, and time-bound. Incorporating all of these moving pieces will help you create better, stronger goals and will give you guidance as to how you’re doing with each of them. When you can’t measure your goals, there will be no way of knowing if you’re working towards them until you either reach them or fail. Small progress is still progress, but you need to be able to know whether or not you’re making it or continuing at a standstill.
4. Tailor Goals to Your Life
Everyone has different goals in life, so everyone should have different financial goals. Create goals that are right for you, not what society dictates that you do. If you don’t want to buy a home, don’t make it a goal to save for a down payment. If you don’t need a car, don’t create a goal to buy a car. It’s as simple as that. While everyone should be saving up for an emergency fund and retirement, the amounts will be different based on your lifestyle. For example, one person’s emergency fund might be tens of thousands of dollars while another might only need a few thousand. Since emergency funds typically aim to cover 30 day’s of someone’s living expense, at the very least, evaluate your needs before making the goal.
5. Create a Budget
To make sure that you’re creating realistic goals that are best tailored to your life, create a budget. See what your absolute necessary expenses are and outline them in your budget. If you enjoy going out with friends every now and then, make a category for that but be reasonable. When you create a budget, you’ll be able to see where you’re over spending and where you have some wiggle room.
6. Stick to Your Budget
Once you make your budget, spend a month or two testing it out. Write down everything you spend and all of your sources of income. Where are you continually overspending? Is it a necessary expense or a recreational area? Adjust your budget and make a conscious effort to stick to it. Sometimes that means sacrificing a little fun or reducing the amount you go out to eat, but if making and sticking to a budget were easy, no one would need to do it.
Short-Term Financial Goals
Creating short-term financial goals is one way to help you pave the way for future success. A few of the best short-term financial goals include the following:
✔ Paying Off Credit Card Debt – debt will hinder your ability to save for your future and you’ll start to rack up insane amounts of interest.
✔ Improving Your Credit Score – your credit score affects interest rates, approval rates, and more. You can improve it by paying off your debt and making timely payments on anything you’re financing. Another way to improve your credit score is to avoid opening too many credit cards and instead, focusing on building good credit on what you have.
✔ Creating an Emergency Fund – emergency funds should include enough money to live for at least 30 days if you were to find yourself without an income. Many people find this too low, so they opt to save for about 6 months worth of living expenses. Making an emergency fund should be a priority for short-term financial goals.
Mid-Term Financial Goals
A few of the best mid-term financial goals include the following:
✔ Pay Off Student Loans – this is a bit harder than credit card debt, but equally important. Try to prioritize paying off student loans so you can stop paying the high interest associated with them.
✔ Saving for Education – if you want to go back to school, or if you want to help put your kids through school, start saving for education. It can take a while but is a beneficial savings goal and can lower your taxable income.
✔ Create Savings for a Down Payment – if you want to buy a house, start a savings fund for a down payment. When you have a larger down payment, you’ll get better mortgage rates and avoid needing to take large loans for mortgage payments.
Long-Term Financial Goals
A few of the best long-term financial goals include the following:
✔ Saving for Retirement – everyone should be saving for retirement. You can contribute money from your paychecks that will lower your taxable income, but remember that you won’t be able to take it out until your at least 65 without being penalized.
✔ Have Comprehensive Insurance – life insurance policies are a good financial investment. You should plan to have a few policies in addition to health insurance and any other coverage you may need.
✔ Keep Your Will Updated – make a plan for how to deal with your finances if something were to happen to you. It’s not what we want to think about, but it’s important to ensure that our families are taken care of when we’re gone.
Regardless of what your financial goals are, you’ll need to make sure that you can reach them. One way to do this is to make sure that you’re not overpaying in taxes each year. This can be mitigated through the use of tax planning. If you need help and want to keep more of your hard earned money in your pockets, don’t hesitate to give us a call at Del Real Tax Group. Our professional accountants aren’t just any ordinary accountants. We strive to make sure that each and every one of our clients are getting the best attention possible while saving thousands of dollars in taxes each year. Visit our website or call us today at 708-788-0082.
Looking for a CPA to perform your bookkeeping or an accountant for your small business? Del Real Tax has been working with small businesses and individuals located around Chicago for many years performing many accounting tasks that can be hard for small business owners and individuals to understand. View more.
Choosing the right company structure is crucial in planning for the successful operation of any business. These decisions can affect a broad range of issues, from equity arrangements and tax advantages to long-term financing and succession of ownership. Del Real Tax Group can help. View more.