Setting financial goals gives you clear objectives to work toward and plan for, aligning income, investments and expenses with a desired outcome. Because circ*mstances can change greatly throughout your life, it is critical to regularly review and update your goals. Taking the time to keep your financial goals current means you are always working toward relevant and achievable results.
Addressing some common questions around setting financial goals can make the process much easier. Consider the answers to these questions as you develop your goals for the first time or revise existing plans.
Why is setting financial goals important?
Financial goals help you direct your earnings toward your most important objectives. Those can include anything from becoming debt-free and creating an emergency fund to working toward complete financial independence. There are also goals tied to specific events, such as saving for a wedding or setting money aside for a large family vacation.
With short- and long-term financial goals in place, it is easier to build an effective budget, prioritize spending and generally follow a financial strategy that supports your wants and needs. Setting these goals can even help you instill financial independence in both your young and adult children.
What are financial plans used for?
Financial plans entail current information about your finances, goals for the future and actionable steps to reach them. Goals serve as a guide and reference that you can refer to as time goes on, helping you direct your spending and saving toward areas that you have singled out as priorities. A financial plan can be viewed as a way to define a path toward your dreams.
A financial plan is only truly valuable when it is accurate and current. When your financial situation changes, your plan will need to adjust as well. A promotion, raise or career change — and many other life events that can impact your income and investments — must be accounted for. A careful review of your plan is needed, along with any relevant updates. A financial planner can help with effective initial planning and updates by offering their experience and expertise.
What should my financial goals be?
Your objectives for saving, investing, wealth management and spending should align with something important to you, whether it’s overall financial security or a detailed plan for retirement. Goals can address wants as well as needs, although it’s important to prioritize a sound financial foundation by addressing needs, like savings and investments, above wants, like a second home or recreational pursuits.
Beyond these basics, the exact definition of a good financial goal can differ from one person to the next. However, effective goals generally focus on some major concerns and opportunities that are relevant to everyone.
Common-sense goals include:
- Paying down debt, which saves money in the long term by eliminating interest payments and improving your credit score.
- Building an emergency fund and keeping it readily accessible in a checking account, which will help you deal with unexpected expenses.
- Saving for retirement, which offers a sense of financial security after exiting the workforce.
- Setting aside money for key goals, such as college savings for your children, which helps you plan around the impact of major, predictable expenses.
Financial goals may also include becoming more financially secure by making carefully considered investments and keeping liquid funds in a savings account with a high interest rate. In these cases, you may choose to work with a financial advisor to make the most of your wealth management options.
The value of financial goals as rewards should not be overlooked in this context. While vacations and major purchases like a new car or home should not come at the expense of basics like an emergency fund or saving for retirement, they can improve your quality of life and offer a powerful sense of satisfaction.
How should I financially plan around my dreams?
Financial dreams are certainly worth working toward, as the results of careful and successful strategy can be particularly fulfilling and rewarding.
However, it’s also important to recognize that some dreams are very ambitious goals. They can go far beyond establishing a stream of investment income or owning a home in a reasonably priced real estate market. In other cases, a dream may simply involve becoming financially secure in retirement or achieving financial independence by a certain date. These dreams are far easier to incorporate into a broader strategy, as they are already key elements of basic financial planning.
Understand that not every effort will succeed, especially when it comes to luxurious and ambitious dreams. Some objectives may be outside the bounds of your earnings and investment income potential. Also keep in mind the frequent need for long-term work and dedication to create an opportunity to realize a personal dream.
You may also need to prioritize your dreams, especially if they are numerous or involve frequent travel, owning expensive assets, wide-reaching philanthropy and similarly expensive pursuits. Selecting one or two dreams on which to focus can make it easier to build thorough, realistic and sustainable plans to realize them.
With this mindset, you are in a good position to incorporate your goals and dreams into your financial planning.
What are short-term and long-term financial goals?
While there is not a precise, technical definition that cleanly splits financial goals into short- and long-term groups, you can use an easily understood, practical distinction. A short-term financial goal will need to be reached in a matter of months or a few years. In contrast, a long-term financial goal is many years or decades away from reaching fruition.
The same objective can also be short term or long term, depending on context. For example, working with a financial advisor to establish a college savings plan for a newborn or toddler is clearly a long-term goal. However, topping out college savings for that same child once they’re in high school is a short-term objective.
A short-term goal, especially one related to establishing an element of basic financial security, should be a high priority. There is a limited amount of time available before the goal can be reached, so it requires the proper level of attention. That’s not to say long-term goals should ever be totally ignored or set aside. However, their nature means that a careful plan, appropriate level of savings or investment and occasional review can capably address them until they start reaching the threshold of short-term goals.
Which financial goals should you start working on now?
In general, it is best to focus on financial goals that address basic needs. Ensuring you save for retirement, paying down existing debt and having an emergency fund on hand are more important than saving for a vacation or big-ticket purchase. These priorities are increasingly important as you get older. If you have these foundational goals covered, you can move forward with objectives such as creating college funds for your children and making investments outside of your retirement plan. From there, you may start saving for a summer home or planning an international vacation for you and your family.
Connect with Comerica Wealth Management for guidance
With proper planning and careful attention given to your current and future financial position, setting goals is well within your reach. Understand your priorities, address the most important needs first and regularly review your goals. A powerful and effective strategy is ensuring alignment between your financial reality and your plans for the future.
Comerica Wealth Management offers support to help you reach your financial goals. Contact us today to learn more.
