When planning for the future, there are certain milestones that you may be focusing on that are inevitably going to require financial preparations. From planning a wedding, purchasing your first home, starting a family, to even funding retirement, you must have an action plan set in place to help you achieve your long-term financial goals. To best prepare for these certain life milestones, it can be helpful to set short-term financial goals first to support your future plans later.
The Importance of Setting SMART Goals
Before setting some short-term financial goals, itâs helpful to be intentional and plan ahead. You may have heard the term, âSMART goals,â which stands for specific, measurable, achievable, relevant, and timely. This is a good way to approach short-term goal-setting. Thatâs because it can be easy to get discouraged or overwhelmed when looking at larger financial ambitions you may have.
For example, you may have a significant amount of credit card debt. Rather than setting a goal to pay off all of your credit cards, a SMART goal could be to pay off the card with the highest interest rate first. This goal is more attainable. And once you achieve this smaller and shorter-term goal, youâll feel more motivated to continue pushing forward to help you reach that long-term objective. Short-term goals can typically be set within a year, whereas mid-term goals would be those within the next five years. Finally, long-term goals would be well beyond that point. Here are a few short-term goals to get you started in your financial journey thatâll promote long-term success:
1. Pay Yourself First
A SMART short-term financial goal to set is paying yourself first. Now more than ever, itâs critical to have funds set aside for an emergency or an unanticipated circumstance. Being intentional about allocating funds towards savings requires diligence and sometimes a shift in your mindset. However, once you start implementing this strategy into your everyday life, youâll be thankful that those funds are there.
You can start off by setting aside a small amount of money from each paycheck that you wouldnât notice was missing and then you can build up from there. Having automatic transfers from your checking account into your savings account can be convenient because it doesnât require any effort on your end to continuously contribute each pay period. In addition, you wonât miss the money or feel tempted to spend it since it was immediately taken out. As time goes on and this becomes second nature, you can increase this amount. Or, you can start an additional savings account designated towards emergencies or specific goals youâre trying to achieve.
2. Establish a Budget
Another way to establish good financial habits is to start budgeting. Even if you donât make any initial changes, having a general idea of where your money is being spent is critical in working towards any larger goals you may have. Rather than using your gross pay as a measurement, itâs especially important to budget by using your take-home pay, which accounts for taxes, health insurance premiums, and IRA contributions.
This gives you an accurate picture of how much you take home from each of your paychecks. And it can better help you determine your expenditures against this amount. When budgeting, consider the areas where you can cut out unnecessary spending. A good way to reframe your mindset when it comes to spending is to look at a purchase based on the hours youâd need to work to pay for this item rather than looking at the overall cost. This can put things into perspective and help you make decisions when making purchases that arenât completely necessary.
3. Explore Life Insurance Options
While most of these short-term goals help to secure your own future, this particular goal protects your loved onesâ futures. An important consideration when working towards a financial objective is determining the best ways to protect all that youâve worked towards, especially if you share these commonalities with someone else. For example, if you share monthly obligations with a partner or have dependents that rely on your income, would they still be financially protected if something were to happen to you? If not, you might consider looking for your own life insurance policy as a safety net for your loved ones.
While it may seem counterintuitive to add another monthly cost to your budget when you are being mindful of your financial obligations, remember that certain costs are necessary and can protect your finances during an emergency. Having the proper insurances set up is one of these costs because when you have adequate coverage, both you and your family are protected from larger expenses that are often associated with accidents or unanticipated events. In regards to life insurance in particular, if you secure a policy when you are younger and in better health, you can lock in a lower rate. This makes another SMART short-term goal to set for yourself this year.
4. Address Credit Concerns
When youâre setting short-term goals to help you reach bigger picture ambitions, one crucial thing to do is address any issues you may have with your credit. Your credit is a building block of your financial makeup and the way that financial service companies will make decisions about your interest rate and whether or not you qualify for a loan. Even though your credit might not directly cost you money, it indirectly controls how your finances are allocated by determining an interest rate for your particular purchase.
While you might be financially responsible now, there could still be things from the past affecting your credit today. Moreover, there could potentially be items on your credit report that arenât completely accurate, costing you money over time. A short-term goal to set now is to begin monitoring your credit history and credit score to give you a better idea of how to make overall improvements or corrections to your credit.
5. Consider Extended Learning Opportunities
There comes a point when you can only cut out so many expenses before hitting a roadblock to push you to the next level in your financial journey. In these circumstances, itâs helpful to find ways to bring more money in rather than focusing on how to cut down on expenditures. While each situation is unique, it can be helpful to build upon your skill set and focus on how to improve yourself in your career. Obtaining certain certifications or taking additional learning courses can give you the opportunity to expand your knowledge and potentially help you move forward in your career. This can often lead to taking home more pay through a promotion or bonus, giving you the opportunity to either save more or pay down debt at a faster rate.
6. Discover Additional Income Possibilities
As previously discussed, another way to improve your financial standing is to make additional money. If at all possible, finding ways to either earn passive income or start a side hustle can help you reach your larger financial ambitions while also giving you the opportunity to learn something new. Having a side hustle is a bit different than earning passive income so take some time to think about your skills, hobbies, and interests when determining ways to bring in extra cash.
With a side hustle, youâre actively earning money. Passive income makes you money over time. For example, a side hustle could be something like walking dogs or providing part-time childcare. Passive income could be seeking out opportunities such as renting out part of your home or earning money from stock dividends. Determine which avenue best suits you so you can be one step closer to reaching your financial aspirations.
Whether youâre saving up for a large purchase, are planning to reach a certain milestone, or are just being mindful of your finances in general, remember that reaching these goals requires diligence and planning. Taking small steps and setting SMART goals can lay a strong financial foundation to set you up for long-term success and security.
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