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Why are financial goals important?
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Why are financial goals important?
What is an example of a financial goal?
If you’re asking, “what are financial goals?” you’re not alone. In fact, most people hate talking about money, so not knowing where to begin with financial goals is normal.
According to a survey conducted by Ally Bank, about 70% of Americans of all ages are uncomfortable talking about their finances. Those surveyed thought it was “rude or inappropriate to discuss personal money matters in a social setting.”
Fidelity Investments conducted a similar study, looking at how couples handle and discuss finances. They found that only 61% of couples surveyed discuss their finances together monthly. That means 39% of couples rarely, if ever, actually talk about money.
There are endless reasons why this social taboo exists. Perhaps you want to protect your social status, you’re afraid of judgment, or you were raised to avoid talking about it.
Whatever the reason, we all have the right to not share info about our financial situations.
But silence can become problematic when it turns into financial anxiety — a condition that can lead to overspending, fear of spending, or even an increased risk of depression.
Financial goals are a healthier way to think and talk about finances. By intentionally looking at your money and making a plan, you can find peace. You might even improve your well-being as you get this area of your life in order.
That said, what are financial goals, and how can you reach them? Finding answers to these questions will help you build a healthier relationship with money. Let’s get started.
Setting personal finance goals means identifying the amount of money you need for the life you want. Then, you make a plan to acquire that sum of money.
A financial goal could be saving to buy a house or aiming to have a certain amount in the bank by the time you retire. You could be hoping to grow your emergency fund, save for college tuition, or pay off debt.
This kind of future-oriented thinking might seem scary. According to one survey, 49% of Americans say that planning for the future feels impossible. And only 30% of American households have a long-term financial plan. Plus, 20% of Americans don’t or can’t afford to save any of their income.
But you should try to make a plan, regardless of uncertainty about the future. Even if you must make adjustments later, it’s essential for your mental and financial wellness.
Financial goals will help you develop a healthier relationship with money. This, in turn, will help you prioritize your spending to build the life you want.
Your demographic will impact your financial situation, which is why it’s important to start saving early. For example, women face more difficulty saving, with 40% of women having only $100 or less in their savings accounts, compared to 26% of men with the same amount. Account balances are also disproportionately low for non-white households.
Your age can make an impact, too. A 2017 survey found that only 24% of millennials show signs of basic financial literacy, despite 69% thinking they had a lot of financial knowledge.
Luckily, you’re here reading this article, so you’ll learn how to get ahead of the financial curve. Knowing how to set financial goals can help you in many areas, including:
You can break down your financial goals into three categories:
Medium and long-term goals will require multiple steps to achieve. It’s important to break them down into milestones to track your progress over time. Short-term goals can also benefit from this strategy, but it’s not always necessary. That depends on what motivates you.
How do you define financial goals? The answer will be different for everyone. If you need help prioritizing your spending, try working with BetterUp. Together we can find out what matters most to you.
The best financial goals are tailored to you and your current financial situation. To help you start thinking about your own, here are some examples of what financial goals are.
Many people incur debt to pay for their college education. It can take years to pay it off. It’s understandable to prioritize this goal to avoid the cumulative cost of interest rate payments.
This is often the first step toward achieving debt-free status and financial independence. Make sure you know your interest rates and how long you expect to be paying them off.
After mortgages, student loan debt is the second-highest category of debt in America.
Depending on your life stage, retirement might seem far off. But if you start your retirement saving now, it’ll pay off in the long run. Many financial products can help you save, like a 401(k) or Roth IRA.
Consult a financial advisor to determine your ideal investment strategy. A retirement plan is an excellent example of a long-term goal broken down into smaller goals. You can start by aiming to save 5% of your income this year, 6% next year, and so on. Eventually, you’ll hit your retirement target.
Buying a home is a common long-term goal. Real estate is a massive and highly sought-after investment. People usually aim for a down payment on a new home or seek to make bigger payments on their current mortgage.
Consider how your current rent would compare to mortgage payments, what size of home you’d want to buy, and how much your down payment would be.
Remember, buying a condo in a city center always carries different costs than a farmhouse in a rural community.
Car financing is more common now than ever. While it’s nice to have a reliable vehicle, bi-weekly or monthly payments can suck money out of your account. Many people try to pay off their cars quickly to use that money for other things.
This one is less of a suggestion and more of a necessity. If you don’t have an emergency fund, create one as soon as possible. You should be able to live off of your savings account for at least three months if you lose your job.
It’s also worth creating a fund for other potential emergencies, like your car breaking down or your home needing repairs. You never know when you’ll need to break the piggy bank.
Vacations are important for your mental health and wellbeing, but they can be expensive. That’s why they’re a popular savings goal. You can save a little bit each month. Before you know it, you’ll be able to take the time off and go on an amazing adventure.
You should aim for financial targets that reflect what you value and what you want in life. Then you can create systems that will keep you motivated and accountable.
Here are some ways you can do that:
The next challenge is sticking to your goals. Here are some tips to keep you on task:
Your financial goals should complement your other ambitions. You should also be thinking about your:
Setting and achieving goals in each area of your life will help you improve your whole self. Let BetterUp help you along the way. With the right support, you can set achievable goals tailored to your lifestyle.
Create a plan for a healthier life with personalized guidance from our wellness coaches.
Create a plan for a healthier life with personalized guidance from our wellness coaches.
Elizabeth Perry is a Coach Community Manager at BetterUp. She uses strategic engagement strategies to cultivate a learning community across a global network of Coaches through in-person and virtual experiences, technology-enabled platforms, and strategic coaching industry partnerships.
With over 3 years of coaching experience and a certification in transformative leadership and life coaching from Sofia University, Elizabeth leverages transpersonal psychology expertise to help coaches and clients gain awareness of their behavioral and thought patterns, discover their purpose and passions, and elevate their potential. She is a lifelong student of psychology, personal growth, and human potential as well as an ICF-certified ACC transpersonal life and leadership Coach.
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