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How to Set Your Financial Goals in 5 Steps

5 min read
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Financial goals can help you lay the groundwork for your financial plan and work toward long-term financial security and independence. Setting financial goals can also change how you look at your income opportunities and spending habits, helping you align your behavior with what’s most important to you.

5 Steps to Setting Your Financial Goals

These five steps can help you develop and track your progress toward the financial objectives that make the most sense for you and your situation.

1. Identify and evaluate your priorities.

Financial experts recommend you start setting financial goals by identifying you priorities. So, what’s most important to you right now? Maybe it’s building an emergency fund in case you lose your job. Perhaps you’re nearing retirement and want to save more. Or, do you want to pay off high-interest debt before you start saving for a down payment on a home?Start by thinking about what matters most to you, breaking your priorities down into a few categories. Here are a few ideas:

Controlling debt

If you have existing debt, do you want to pay it off as soon as possible? Or do you want to prioritize other financial goals instead (such as more education) while you continue paying down your existing debt?

Building savings

How important are financial security and independence to you, and what does that look like? Do you plan on building retirement savings slowly over a long period of time with a diversified portfolio and retire in your 60’s, 70s, or 80s? Or, do you think about drastically reducing your living expenses now so you can save the majority of your income over the next 10-15 years and retire in your 30s, 40s, or 50s?

Establishing lifestyle

Do you want to rent or buy a home? Where do you want to live? Do you want to make traveling the world a way of life? What other ways do you want your lifestyle to change over time?

Reducing risk

How will you deal with potential unforeseen events, such as a layoff, death or disability, that could derail your financial plans?After writing down your goals, rank their importance. This process can take some time as you think about your future, but it can help you better visualize your goals, provide inspiration, and help you solidify the reasons why you want to achieve certain goals and not others.

2. Define your goals and make them SMART.

To make your financial goals effective and easier to obtain, experts recommend using the SMART goal-setting model to ensure your objectives are Specific, Measurable, Achievable, Relevant, and Time bound.Here’s an example of defining the goal of buying a home using the SMART model:

  • S – Specific: Save money for a down payment on a home.

  • M – Measurable: Save $25,000, allowing you to put down 5% on a $500,000 home.

  • A – Achievable: Open a savings account where you will set aside $500 per month plus annual bonuses.

  • R – Relevant: Owning a home is an important step in building the life you want.

  • T – Time-Bound: Depending on the amount of your annual bonus, you can save up the money for the down payment over the next three to four years.

You can apply this process to any of the financial goals on your list. If you’re having trouble identifying the criteria to make your financial goal SMART, you may need to adjust your expectations or consider talking to a financial advisory who may be able to offer some guidance.

3. Get on a budget.

Once you’ve laid out your financial goals, developing a realistic budgetcan help you achieve them one by one. If you’re not already on a budget, take some time to look at your income and expenses over the last few months. Categorize each expense so you know exactly where your money is going.If you find some additional cash flow every month, you could allocate that into one or more of your financial goals by setting up automatic transfers into emergency savings, paying debt down faster, or another financial goal to increase your chance of success.Try to pinpoint where in your budget you could cut back and put that money toward your goals instead. For example, if you’re spending a lot on eating out or food delivery, consider cooking at home more often and re-allocating those dollars toward one of your goals.You could build your budget on your own or research and compare various budgeting apps that can help you improve the way you manage money.Check in on your budget periodically to make sure it’s still working for you and make any adjustments, if necessary.

4. Maximize (and research) your money management.

Once you’ve laid the groundwork for your financial goals, do some research on the array of financial products and services available that can help you better work toward them.For example, if you have some short-term savings goals, such as building an emergency fund, you could compare high-yield savings accounts and choose one with a high APY to maximize your progress. If you have high-interest credit card debt, consider a debt consolidation loan that could help you save money or lower your monthly payment (depending on your goals) while you pay it down.If you’re saving for retirement, understand the value of taking full advantage of matching employer contributions. Also, learn about the differences between Traditional and Roth IRAs, self-employment retirement plans (if applicable), and other tax-advantaged ways to make the most of your investments.Finally, you may consider new job opportunities that can help you bring in a higher regular income, which you can use to accelerate your progress toward your goals.When it comes to researching financial products and services, it can be difficult to know where to start, especially if you don’t have a lot of experience with money-related tools. Depending on your goals, there’s a wealth of knowledge online that you can use as a springboard to find the best approach for you. You can also connect with a financial advisor for expert, personalized advice.

5. Make adjustments as you go.

What’s most important to you, including your financial priorities and goals, will change over the course of your life. For example, your goals as a single person in your 20s most likely will be quite different from the priorities you may have as a parent in your 40s.It makes sense to track your progress toward your financial goals and reevaluate your approach over time. Consider doing this every six or 12 months or if you experience a big life event, such as a big change in your income, marriage, divorce, the birth of a child, or a major medical concern. Review your goals, and if you’re on track, consider whether it’s possible to accelerate your progress. If you’re not on track, think about the reasons and whether or not it’s within your control to get to where you need to be.If you’re falling behind due to circumstances outside of your control, consider reprioritizing your goals and adjusting them based on your new situation.

The Bottom Line

Setting financial goals using SMART principles can help you improve your chances of achieving the life and financial security you desire. Because financial goal setting will be different for everyone, it’s important to consider your situation in context, take a structured approach, make full use of available tools and resources, and apply your best judgment to determine your best path forward. And if your goals include consolidating debt, a personal loan from LendingClub Bank could be a smart choice.

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