Achieve financial success by setting goals.
Studies have shown that people who clearly define their goals, whether it’s losing weight or gaining a new position at their workplace, have a better success rate than those who simply wing it.
It’s no different for financial goals. Do you want to own a new home, take a European vacation or put your kids through college? Whatever your personal financial goals are, preparing a plan is the first step toward achieving success.
Before we go any further let’s test your skills on this subject.
Test your know-how before you start to see how much help you need. Can you skim this section or do you need to take some time on this topic?
How much money do you need as a down payment on a traditional mortgage?
A) At least $20,000
B) 5% of the amortization of the loan
C) However much money you can get in payday loans
D) 20% of the purchase price
D) 20% of the purchase price
Include the whole family
Goal-setting presents the perfect opportunity to bring family members closer together. For younger members and members that have never set financial goals before, it’s also an educational experience.
Kids benefit because they’ll learn more about money management, saving money and becoming goal-oriented individuals. Their inclusion is also essential if the goal will impact them directly. Maybe lifestyle changes will occur because of the goals, or the goal is college related.
Create realistic goals
Your goals must be realistic and attainable. Don’t aim for buying a Porsche, when you can realistically only afford a compact car. That defeats the purpose.
You need specific, defined goals that are realistic.
When you set unrealistic goals, you get discouraged and give up. When your goals are practical, you don't get frustrated. You work hard toward attaining them.
Plan your goals
Once you decide on your first set of goals, develop a written plan that effectively executes them. Record each goal in your Financial Goals Action Plan Worksheet, placing it under the appropriate heading:
- Short-term goals (1 year or less to achieve)
- Mid-term goals (2-5 years)
- Long-term goals (more than 5 years)
Bring your goals into focus
For each goal that you put on your worksheet:
- Note how much money and time you’ll need to achieve it. This should include a total cost (or best estimate) and timeline of how many months you believe it will take to reach that goal.
- Divide the total cost of the goal by the number of months you have to achieve it. The dollar amount you calculate is the money you’ll need to save toward that goal each month, according to the timeframe you set.
- Write down the strategies you must take to come up with the required amount every month. For instance, you or your spouse may get a second job. Or, if one spouse is not working, they would get a part-time job. You can cut monthly spending by not eating out or lowering such bills as the cable or phone bills.
Staying on track
Like New Year’s resolutions, the main problems with attaining goals are losing interest or just giving up. Goals take time. If you start getting lazy, break your goal into smaller objectives. That way, you can see you're making progress and staying motivated.
Be SMART about objectives
There's an easy acronym you can use as a formula for success in setting objectives for a big goal:
Define specific and realistic objectives that can be measured as you make progress. This way, achieving them in a timely manner is easier.
An example of goal-setting
Let's say your car is getting older and you'll need a new vehicle in a few years. That would be a mid-term goal. Here’s an example of some objectives you’d set:
- Research and find a car that works for your needs and budget. Give yourself three months for the research. Utilize the web and talk with friends who own similar cars. Visit a few dealerships -- just don’t let them sell you a car.
- Pay off debt so you can easily afford the future payments. Get your DTI ratio under 15 percent, so you can afford the new payments.
- Get a copy of your credit report and correct any errors - this maximizes your credit score. Complete the credit report review 6 months prior to purchasing the car. This way you can correct any errors that could drive down your credit score.
- Save enough money for a down payment. Save a reasonable amount each month for as many months as possible. This is essential. A big down payment usually means better terms on your loan.
Once you achieve your goals and save money, take a bow. Actually, the whole family should take a bow together.