Setting Financial Goals For Your Future

Setting short-term, mid-term, and long-term financial goals is an important step toward becoming financially secure. If you aren’t working toward anything specific, you’re likely to spend more than you should. You’ll then come up short when you need money for unexpected bills, not to mention when you want to retire. You might get stuck in a vicious cycle of credit card debt and feel like you never have enough cash to get properly insured, leaving you more vulnerable than you need to be to handle some of life’s major risks.

Annual financial planning gives you an opportunity to formally review your goals, update them, and review your progress since last year. If you’ve never set goals before, this planning period gives you the opportunity to formulate them for the first time so that you can get or stay on a firm financial footing.

KEY CONSIDERATIONS

• Proper financial and retirement planning starts with appointing professional advice. You can then create a strategy for goal setting, including short-, intermediate-, and long-term goals. 
• Key short-term goals include setting a budget and starting an emergency fund.
• Medium-term goals should include key insurances, while long-term goals need to be focused on retirement.

Here are goals, from near-term to distant, that financial experts recommend setting to help you learn to live comfortably within your means and reduce your money troubles.

Short-Term Financial Goals

Setting short-term financial goals can give you the confidence boost and foundational knowledge you need to achieve larger goals that will take more time. These first steps are relatively easy to achieve. While you can’t make $2 million appear in your retirement account right now, you can sit down and create a budget in a few hours, and you can probably save a decent emergency fund in a year. Here are some key short-term financial goals that will start helping right away, and get you on track to achieving longer-term goals.

Establish a Budget

An easy way to track your spending is to use a free budgeting program. It will combine the information from all your accounts into one place and let you label each expense by category. You can also create a budget the old-fashioned way by going through your bank statements and bills from the last few months and categorising each expense with a spreadsheet or on paper.

Once you see how you are spending your money, you can make better decisions, guided by that information, about where you want your money to go in the future.

Create an Emergency Fund

An emergency fund is money you set aside specifically to pay for unexpected expenses. To get started, $500 to $1,000 is a good goal. Once you meet that goal, you’ll want to expand it so that your emergency fund can cover larger financial difficulties, like unemployment. A 6 month provision provides a solid base target for this element.

While you probably have other savings goals, too, like saving for retirement, creating an emergency fund should be a top priority. It’s the savings account that creates the financial stability you need to achieve your other goals.

Pay off Credit Cards

Experts disagree on whether to pay off credit card debt or create an emergency fund first. Some say that you should create an emergency fund even if you still have credit card debt because, without an emergency fund, any unexpected expense will send you further into credit card debt. Others say you should pay off credit card debt first because the interest is so costly that it makes achieving any other financial goal much more difficult. Pick the philosophy that makes the most sense to you, or do a little of both at the same time.

Mid-Term Financial Goals

Once you’ve created a budget, established an emergency fund and paid off your credit card debt—or at least made a good dent in those three short-term goals—it’s time to start working toward mid-term financial goals. These goals will create a bridge between your short- and long-term financial goals.

Get Life Insurance and Disability Income Insurance

Do you have a spouse or children who depend on your income? If so, you need life insurance to provide for them in case you pass away prematurely. Term life insurance is the least complicated and least expensive type of life insurance and will meet most people’s insurance needs. Your appointed Wealth Manager can help you find the best price on a policy. Most term life insurance requires medical underwriting, and unless you are seriously ill, you can probably find at least one company that will offer you a policy.

Disability insurance will replace a portion of your income if you become seriously ill or injured to the point where you can’t work. It can provide a larger benefit than Social Security disability income, allowing you (and your family, if you have one) to live more comfortably than you otherwise could if you lose your ability to earn an income. There will be a waiting period between the time you become unable to work and the time your insurance benefits will start to pay out, which is another reason why having an emergency fund is so important.

Consider Your Dreams

Mid-term goals can also include goals like buying a first home or, later on, a vacation home. Maybe you already have a home and want to upgrade it with a major renovation—or start saving for a larger place. College for your children or grandchildren—or even saving for when you do have children—are other examples of mid-term goals.

Once you've set one or more of these goals, start figuring out how much you need to save to make a dent in reaching it. Visualising the type of future you want is the first step toward achieving it. Discuss your aspirations with your Wealth Manager and agree a realistic strategy with regular targets to ensure you are keeping on track.

Long-Term Financial Goals

The biggest long-term financial goal for most people is saving enough money to retire. The common rule of thumb is that you should save 10% to 15% of every salary payment received. Of course this is dependent upon the age that you commence with your retirement strategy.

Estimate Your Retirement Needs

1. Estimate your desired annual living expenses during retirement. The budget you created when you started on your short-term financial goals will give you an idea of how much you need. You may need to plan for higher healthcare expenses in retirement.

2. Subtract income you will receive. Include Social Security, retirement plans, and pensions. This will leave you with the amount that needs to be funded by your investment portfolio.

3. Estimate how much in retirement assets you need for your desired retirement date. Base this on what you currently have and are saving on an annual basis. Your Wealth Manager can illustrate this task for you. If 4% or less of this balance at the time of retirement covers the remaining amount of expenses that your combined Social Security and pensions do not cover, you are on track to retire.

Increase Retirement Savings With These Strategies

For most people who have an employer-sponsored retirement plan, the employer will match a percentage of what you are paid. They might match 3% or even 7% of your salary. You can get a 100% return on your investment if you contribute enough to get your full employer match, and this is the most important step to take to fund your retirement.

Bottom Line

You probably won’t make perfect, linear progress toward achieving any of your goals, but the important thing is not to be perfect but to be consistent. If you get hit with an unexpected car repair or medical bill one month and can’t contribute to your emergency fund but have to take money out of it instead, don’t beat yourself up; that’s what the fund is there for. Just get back on track as soon as you can and map your progress and position with your Wealth Manager.

The same is true if you lose your job or get sick. You’ll have to create a new plan to get through that difficult period, and you may not be able to pay down debt or save for retirement during that time, but you can resume your original plan—or perhaps a revised version—once you come out on the other side. Again with regular reviews your appointed Advisor can help you recover and make progress towards meeting your original objectives.

That’s the beauty of regular financial planning: You can review and update your goals and monitor your progress in reaching them throughout life’s ups and downs. In the process, you will find that both the small things you do on a daily and monthly basis and the large things you do every year and over the decades will help you achieve your financial goals.

Contact NEBA Wealth Management today to take advantage of risk controlled investment and protection strategies and let us guide you along the path to financial freedom. Email: enquiries@nebawealth.com or Call: +60 3 6206 2183

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