You have been successful in paying back debts. So, now what?
Your job doesn’t end here. You have to set a goal to remain debt free or at least manage your debts effectively.
By setting goals you can stay on top of your finances and live a happier life. So, set effective goals, stay debt free, and build a better financial future.
In this simple guide I will discuss how that is possible and how you can achieve success when setting financial goals.
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How to set effective financial goals
Goal setting will not be fruitful unless you plan them in an effective way. The effective way includes a technique, i.e. SMART financial goals. SMART is the abbreviation for Specific, Measurable, Attainable, Relevant, and Time-bound.
Set specific goals
When you are setting goals, it is important to be specific. Specific in the sense of taking particular steps to achieve the goals.
You might have a goal like “saving for a down payment” but have you decided the amount you are going to save for a down payment? If not, then your goal is the vague one.
To make your goal specific, you need to determine an amount you want to save in a year or month or week.
For example, suppose the amount of your down payment is £20,000, which you need to save in three years. So, you need to save £6,666 in a year, and that means £555 in a month.
You can also set a goal of building an emergency fund worth of 5-6 months of your lifestyle expenses. It can help you if you’re laid off for a certain period.
I noticed when I write my goal on a calendar that I tend to work harder to achieve that goal by the date. So don’t just add a goal without a narrowing down a deadline date.
Set measurable goals
It is important to make your goals measurable for some reasons like to stay motivated and assess the progress toward the goal achievement.
For example, you have set a goal to “save money” by spending less. In such a case, you’ll have to know how much you are spending now. Else, you can’t decide how much you have to cut back on your expenses to save the required amount.
So, figure out your expenses to decide the amount you want to cut back and put it in savings.
It will help you save a required amount every month which you can put into your emergency fund to avoid falling into debt.
Set attainable goals
Your goal must be a realistic one so that you can attain it with some easy moves. In case of unrealistic goals, it will be difficult for you to achieve, and in turn, you’ll lose hope.
While there is no will, no hope, you can’t achieve any goal. So, before you set goals, make sure you can achieve them, and for this, you need to know some secrets to set achievable goals.
Suppose, you aim to save £150 per week but if you have only £30 extra at the end of the week. And, it’ll be quite impossible for you to achieve your aim.
Therefore, get well aware of your financial state and then set goals so that you don’t have to face any hardship to achieve them.
Also, one good way to avoid debt is to restrict using your credit cards and paying back the bills in full at the end of every billing cycle.
Set relevant goals
Set goals that will keep you motivated to save a significant number of bucks. If you set goals which don’t make you excited to save extra, then it will go in vain. Because there is a higher chance to quit it in a middle way. So, set goals that you love to achieve, not those which make you feel difficult to achieve.
Take a sheet and a pen to list the goals you want to achieve in the next five years or ten years or more.
Your list can include building an emergency fund, planning for a vacation, replacing your car, buying or renovating your house, saving for your kid’s education, planning for retirement, and so on.
Just make sure you are setting relevant goals.
If you want to achieve financial independence, then calculate your FI number and set your goals accordingly. Measure your achievement at regular intervals to keep you motivated.
Invest in a good planner, organise your finances and prioritise your goals.
Set time-bound goals
Most of us have a tendency to delay making money related decisions. But you need to set a timeline so that the sense of accomplishment motivates you to work towards achieving your goals.
To set a deadline, you need to figure out when you’d like to accomplish your goals.
For example, if you are planning for a vacation next year, the timeline is one year, and somehow, you’ll manage to save a certain amount to reach your goal within a set period.
What you can do is, calculate the overall expenses of your tour and divide the amount by 12 and save that amount every month.
Doing so, you can avoid swiping your cards and fall into debt. Your vacation will be more enjoyable when you know you don’t have any debts to pay off later.
Types of financial goals
While setting goals you need to know about the types of goals based on the timeline.
- Short-term financial goals
Short-term financial goals take less than one year to get accomplished. Examples of short-term goals can include planning for a tour, buying a new TV, or paying off small debts.
- Mid-term financial goals
Midterms financial goals take more time than the short-term goals and less time than long-term goals. Midterms financial goals can be buying a car or paying off debts.
- Long-term financial goals
Long-term financial goals generally take more than 5 years or more to achieve. Long term goals examples include saving for a child’s education, saving for retirement, or buying a home.
It may take about 20 years or more to achieve financial independence.
Setting financial goals – Does having a financial goal lead to a debt-free life?
Yes, there’s a connection between having financial goals and living a debt free life. When you have financial goals, your mindset will be saving money.
Saving money or putting aside a certain amount works as a strategy to avoid debt. It prevents you from falling into a debt trap as you have already set aside a certain amount in your savings account or in an emergency fund.
Moreover, you also plan your finances effectively to have a better financial future.
Setting financial goals and strategy will help you keep an eye on your expenses and in turn, win a monthly savings challenge. Moreover, it will teach you to live a frugal life where debt has no entrance.
However, even after following these strategies you fall into debt, don’t waste time. Select a suitable debt relief strategy like debt consolidation or debt settlement and work your way out of debt. At that point in time, set the goal of getting out of debt as early as possible.
So, set goals, achieve them, and have a wonderful life ahead!
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