Short Answer: Long-term financial goals balance planning and setting attainable savings goals.
Setting a financial goal is only the first step in achieving it. Long-term financial goals require follow-up, planning, and patience to achieve them.
When it comes to following through, a whopping 92% of people don’t meet the goals they set out to achieve. What can you learn from the 8%? The importance of smart goal setting, especially when meeting financial goals.
No matter short term vs. long term goals, ask these questions to make meeting your money goals easier.
It always starts with why, even when it comes to long-term financial goals. Why are you saving this money?
Knowing “why” is important because it can motivate you to follow the goal. If the reason was simply “to save money,” you might have a more challenging time visualizing success when the going gets tough.
There’s no right way to answer the why. It could be anything from saving up for your dream vacation to meeting your goal to retire by 60. So, when you say no to an impulsive purchase or spendy dinner out, you have the image of your vacation or early retirement in mind as motivation.
Is your financial goal short-term or long-term?
If you’re saving for a vacation in a few months, that’s a short-term goal (anything from one to two years). Whereas saving for a home down-payment might be more of a long-term financial goal (more than two years out).
Having a timeline in place gives you space to work backward. Once you know where it ends, you can start breaking your goal into smaller milestones, creating a pathway to savings.
Hand in hand with when is “how much”? Determine how much you want to save. Most people find it helpful to save in terms of tangible things: A vacation, a car, a down-payment on a home.
Now that you have when and how much, you can break down the goal.
For example, let’s say you want to save $2,500 for an upcoming vacation in 6 months. $2,500 as a lump sum can be intimidating, but when you break it down into six months, that’s $416 each month. If you want to break savings goals down even further, you could aim to save $85 a week, putting you on track to save over $2,500 at the end of six months.
Savings milestones might coincide with payday. What is a comfortable frequency and method to contribute to your goal? Do you get paid weekly or bi-weekly? Is it easier to contribute to your goal right after all of your bills are paid? Choose a method and frequency that you can stick to.
Long-term financial goals have the benefit of time and use that time wisely. Break down big goals into manageable money milestones.
With a timeline and goal in mind, now comes the how. Take the example above, saving for a $2,500 vacation. Can you afford $85 in your budget each week to set aside for the goal? $416 a month?
Meeting those goals may require a deep dive into your budget. How can you find that money in your budget to make the goal?
- Decide if there are any concessions you can make each week to help you reach your goal faster. Could you sacrifice a streaming service?
- Look ahead to any abnormal cash flows and plan: Do you get an annual bonus at work? Expecting a tax return?
- Can you institute no-spend days where you pocket the cash you would’ve spent and put it towards your savings goal?
- Sometimes, the only way to meet a savings goal is to make more. Are you due for a promotion? Would you consider taking on a side hustle?
- Can you cut back on unnecessary spending? That could mean fewer shopping trips or more cooking at home.
Revisit Your Goals
You may find it hard or even impossible to meet the goals you set, and that’s understandable. You may need to start with a more straightforward goal. Otherwise, you’re setting yourself up for failure from the jump. Better to meet (and possibly exceed) a goal than being discouraged by falling short.
While a reach goal can be aspirational, a goal has to be attainable. Otherwise, you’ll never meet it. That might mean vacationing on a budget or starting smaller with your savings and retirement goals.
Many fail to realize that most people fail at their goals because they were never set up to achieve them. You can’t just decide on a goal then expect it to happen magically.
Breaking financial goals into smaller milestones means a better chance to achieve them. They become less intimidating when you chip away at them slowly over time.
At first, it may feel like you’re being easy on yourself. Don’t let a smaller goal discourage you, and it just means you can reach it even faster and set your next goal a little higher.
How do I know how much to save for something like retirement?
There are plenty of retirement savings calculators out there, but Troutwood can help you create a custom plan based on career, cost of living, and more. Retirement might seem like a far-off goal, but the sooner you start saving, the smaller each milestone. Retirement planning can be made more accessible with the help of employer 401(k) programs or tax-advantaged IRAs.
What are some long-term financial goals I can work towards? Mid-term? Short-term?
Understanding why you’re saving is a foundational part of financial goals. If you don’t have a reason in mind, consider these thought starters.
- Downpayment for home
- Wedding expenses
- Childcare costs
- Future educational costs
- Downpayment for home
- Car purchase
- Student loans
- Emergency savings
- Deposit on an apartment
- Debt repayment
- Big-ticket item (TV, clothing, vacation)