“I want to buy a bicycle to get to work.” “I want to renovate the kitchen.” “I want to retire by 60.” We all have goals—small and large, short- and long-term. Reaching them takes planning and saving. Budgeting can help.
In this section you will learn:
- how to identify short-, medium- and long-term financial goals
- how to define your goals so they are achievable
- how to use your budget to help you reach your goals.
If you want to go on a road trip, you need a good map. It’s the same with your finances. To manage your money well, you need to know where you want to go. That means setting financial goals.
You’re more likely to reach your goals if they’re SMART: Specific, Measurable, Achievable, Realistic and Time-Framed. Here’s an example:
- “Save for a vacation” is vague and hard to measure. How will you know if you are making progress or have achieved it?
- On the other hand, “Save $5,000 for a trip to New York within eight months” is SMART. It’s specific—you know exactly what you’re saving for. It’s measurable—you know how much you will need. It’s achievable and realistic—you can break the total needed into smaller steps (for example, saving $625 a month) that will be easier to do. And it’s time-framed—you’ve set a deadline.
When you define your financial goals, make sure they are SMART.
Start with the near future. Think about your needs, wants and your priorities. What do you want to do within the next year that will cost money? It could be to pay off your $800 credit card balance, put $1,000 in a Registered Retirement Savings Plan or add a deck to your home for $2,000.
Think further into the future. What do you want to do in the next one to three years that will cost money? It could be to take a ski vacation for $3,500, save $5,000 for your children’s education or buy a used car for $15,000.
Now look even further ahead. What do you want to do three or more years into the future that will cost money? It could be to pay off your $25,000 student loan, save $30,000 toward your retirement or renovate your home for $50,000.
- It’s important to set short-, medium- and long-term financial goals.
- Make sure your goals are SMART: Specific, Measurable, Achievable, Realistic and Time-Framed.
- Break your financial goal into monthly pieces and add that amount to your budget. Adjust your spending in other areas if necessary to meet your monthly savings goal.
At the end of the module, you will find an Action plan. This is a tool that you can use to track your progress and take the next steps to manage your income and expenses successfully in the future. Use the action plan as a roadmap for financial action!