I was 27 when I finished my first year of working at an international school in Switzerland. Living abroad wasn’t my “forever plan” and I had no idea how long I would stay. But I had always thrived on the unknown and I liked not knowing where I’d be or what I’d be doing. It was exciting, and I wasn’t worried. I had enough money to do the things I wanted to do and no one to spend it on but myself.
At the time, my parents were working with a financial planner who was offering his services for free to family members. They encouraged me to go, so I went (even though the most financial “planning” I had ever done was to think that maybe I should invest in something at some point).
He sent me home that night with homework. Write down your financial goals that you want to accomplish in 1 year, 5 years, and 10 years. That was it, no other guidance. I stared at the paper that night, my mind a blank. How was I supposed to set money goals for the future when I had no idea where I’d be or what I’d be making?
When I did move back to the US, I came back with incredible experiences. However, I also came back with very little money saved and a lot more in credit card debt. It was only afterwards that I realized what a missed opportunity that had been. I could have done everything that I wanted to do while still building my savings, learning about investments, and growing my retirement. But I needed more specific goals if I ever hoped to reach them.
Identifying specific financial goals can help you set a plan for both the fun and the necessary. It doesn’t matter if your situation may change in the next few years or whether it will stay exactly the same. It doesn’t matter how old you are, how much you make, whether you are single or have 5 kids. Goal-setting is a valuable experience for anyone because it helps you to think about your ideal future and take steps to make it a reality.
Here are 5 reasons that you need to set financial goals.
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Setting goals identifies your priorities
There are a lot of things that I would like to do with my money. I want to travel the world, buy kayaks, try all of the awesome restaurants around Portland, definitely try circus fitness, take cooking classes, buy a new bike. I also want to grow my retirement savings, continue to learn about investing, build a bigger emergency fund, and pay off my car. There’s a lot that I want to do, but I know that I can’t afford to give equal time, money, and effort to all of those things at the same time.
Setting financial goals helps you narrow down your priorities so that you know where to put your money. By defining what you want to achieve, you’re able to focus your efforts and stop spending aimlessly. Your priorities may shift over time depending on your income and life circumstances (right now saving for a child’s college fund isn’t on my radar, but it probably will be at some point). But by continually reassessing your goals, you are able to adjust to changing circumstances.
Setting goals gives you purpose and direction
This was the big lesson learned from my aimless first financial planning meeting. I had no idea what I wanted to do with my money, so I didn’t do anything with it. I spent it in whatever way I felt like, and I ended up with big debt and little savings. If you aren’t working towards something specific, you’re more likely to overspend, and that’s exactly what I did. It doesn’t matter if you make $20,000 or $200,000 a year, you need a plan for your money. Otherwise you may end up wondering where it all went.
Setting goals helps you stay focused on what you want
Some things are more fun to save for than others. Saving for vacation rarely feels like a chore because I know that when I’m laying on the beach somewhere, I’m not going to have to worry about every penny. On the other hand, no one likes putting money in a retirement account that you won’t access for decades. However, I want to be able to retire at a decent age and maintain my lifestyle. By writing it down and making it one of my priorities, I am continually reminded of its importance.
Setting goals allows you to track progress (and celebrate accomplishments)
According to Mark Murphy at forbes.com, just the act of writing down your goals sets you up for success. Identifying goals, visualizing them, and recording them not only helps you remember them, but it helps you achieve them.
Setting goals, and the necessary steps to reach them, allows you to celebrate the accomplishments along the way to achieving a long-term goal. There’s a reason why fundraisers often use big, brightly-colored visual tracker of their progress like the classic thermometer. It’s not only motivating to watch it increase, but progress is marked in small increments that can be celebrated as they are met.
Life is unpredictable. Whether you are 20 or 80, you could find yourself in a medical situation, needing a new car, or suddenly out of a job. You need a plan for your money.
Are you ready to set your financial goals? Learn specifics at How to Set and Keep Financial Goals, or download my FREE Financial Goal-Setting Workbook to walk you through step by step.