In last month’s post, I talked about setting budgets. That’s a key first step to taking control of your money and living the lifestyle you want without going into debt. Once you have a handle on your spending, you can start planning for the future. That’s where goals come in.
Generally, goals are defined as either short-term or long-term. I think of short-term goals as financial events that will happen in the next 5 years; long-term goals are anything with a longer time horizon. Here are some examples:
- A wedding
- Have a baby, surgery or other healthcare costs
- Home renovation
- College savings
- Retirement savings
- Buying a home
- Buying a new car
For the sake of this post, I am going to focus on short-term goals, as long-term goals are generally more complex. I will talk more specifically about retirement and other long-term savings goals in future posts, and you can add each to your Personal Finance Worksheet (or Mint.com) as you go.
Start by making a list of all of your financial goals – don’t edit them at this point. Just write down everything you aspire to. Then, determine how much you need to save to meet each goal. For short-term goals, this should be fairly easy to define; do some research on how much the dream vacation package will cost, for instance. If you already know your target amounts for long-term goals, you can add those to your list, too. (If not, don’t worry; I will go over that later.)
Once you’ve set your goal amounts, determine the timeline for each goal, then use that timeline to determine your monthly savings target. For example, if you want to take a vacation to Europe next summer that will cost $3,000, you will need to set aside $250/month for 12 months (3,000 / 12 = 250). Do this for all of your goals, then add up all of the monthly amounts. Can you afford the total monthly savings amount with your current budget?
This is where the Personal Finance Worksheet comes in handy. Plug in your savings goals under the “Savings” section at the bottom in the grey “budget” column for each month – you can add more rows as needed. Then, look at the very last row at the bottom: “Surplus Savings.” If your surplus savings amount is positive, great! You have extra funds to save or spend. If it’s negative, then you need to trim your spending to meet your goals, adjust the timeline or amounts of your goals, or brainstorm ways you could make a little extra cash to make up the difference. If all else fails, you may need to prioritize your goals and cut out the ones that are least important to you.
Once you have the amounts set and are on the savings track, it can be helpful to set aside money in separate accounts for each goal. Open a savings or money market account for each short-term goal and personalize the name of the accounts in your online banking system – instead of “Savings Account” call it “Trip to Europe.” It will be encouraging to watch your money grow! To make saving even easier, have the amounts automatically deducted from your paycheck and direct deposited into those separate accounts.
That’s it! You’re on track to save for the future. Next month, I will talk more about planning for long-term goals.
Have other tips for setting and meeting short-term goals? Share them in the comments below!
Please note: I am not a financial expert and speak to financial topics from my own personal experience. Please consult a financial professional before making any of your own personal financial decisions.