Setting financial goals is a critical step of your personal financial planning process. Not addressing such issues head-on can cause disruptions in your life, often negatively impacting your relationships. Learning how to set financial goals is often a great way to motivate yourself to create a plan and stick to it.
Why Is It Important to Set Financial Goals?
When you’re working towards a specific goal, you have a fixed point you’re trying to reach. This provides direction, purpose, and structure which is important in all aspects of life, but especially with your finances. The purpose of a financial plan isn’t just to be responsible or to be able to purchase something — it also benefits the relationship you have with money.
Money isn’t everything, but it does play a large role in our lives and mental health. Wouldn’t you rather feel fulfilled and excited than be anxious every time you swipe your credit card? Having an organized, goal-oriented approach to your finances is how you do that.
Types of Financial Goals to Set
You should have financial goals set for three seperate time frames:
Short-term: Achieved in 1-5 years or less.
Mid-term: Achieved in 5-10 years.
Long-term: Achieved in 10 years or more.
Start with a short-term financial goal. This goal can be small, such as saving for an emergency fund. An example emergency fund goal may look like this:
- Say you can afford to save an average of $500 from each paycheck. A person saving $500 from each bi-weekly paycheck saves a total of $10,000 after 20 paychecks. This would take 40 weeks.
- So, you could say your goal is to have $10,000 in your emergency fund 10 months from your next paycheck. You can either continue to contribute (even in a lesser amount) or, if you need to dip into it, simply start the saving process over again to replace the amount you used.
Other examples of short-term goals include creating a budget or paying off credit-card debt.
Additionally, many banks or employers will allow you to automatically move funds into a designated account either directly from your paycheck or through an automated recurring fund transfer. These tools can help you put money aside — sometimes without seeing it in your main account, where you may be tempted to spend it. Putting your money into a savings account versus a checking account will also make withdrawals less tempting.
A mid-term financial goal would be something like paying off large debts, such as a car payment or mortgage. Options for paying these off depending on how much money you have after you’ve paid bills and added to your savings.
If your debts come with high-interest rates, you may benefit from refinancing them. If your debts have reasonable interest rates that cannot be lowered by a refinance, then paying an additional small amount toward the principal balance can help you pay off your loans faster.
The most important long-term financial goal is retirement planning. To find out exactly how much money you need to save for retirement, think about how much you could comfortably live off as an annual salary. This figure will vary based on your debts or your spending habits. If you have a military pension or another retirement plan, reduce this amount from your proposed annual retirement salary.
A very general example would be: If you save $5 million, you should plan to live off $200,000 per year to ensure your retirement savings last.
Working with a Financial Advisor
Whether you need help setting financial goals or sticking to them, enlisting the help of an expert is always a good idea. AAFMAA Wealth Management & Trust (AMW&T) is here to guide you through every step of the financial planning process. We’ll work collaboratively with you to create a plan that’s totally unique to your military family.
To learn more about financial planning and management, contact us online or at 910-390-1425 today!