Key takeaways
Your financial goals are both a to-do list and a long-term strategy.
Listing, prioritizing and finding the intention behind your goals makes you more accountable and increases your likelihood of success in achieving them.
A financial plan provides a vision for working towards your goals. Revisit your goals and your plan regularly to review your priorities and chart your progress.
Whether it’s leaving a legacy for the next generation or buying a home, setting financial goals are essential for achieving what matters most to you. Understanding how to set goals is the first step to creating a financial plan that works for you.
Financial planning charts out the path for realizing your goals. “We all benefit from having structure and a framework to work toward our goals,” says Sarah Darr, head of financial planning for U.S. Bank Wealth Management. “The best way to start that process is to dedicate time outlining what's most important to you and why.”
“Your financial goals are an ongoing process that provide clarity and confidence for the future. You’re building a vision for the things you’re dreaming about and want to accomplish. Start the process and see the possibilities unfold.”
Sarah Darr, head of financial planning, U.S. Bank Wealth Management
When setting financial goals, it’s important to reflect on your intentions and aspirations, which can help you establish—and achieve—them with confidence. Consider working through these five steps to set your financial goals.
Start by listing out your financial goals, both those you’re already working toward and those you haven’t started on yet. As you identify each goal, prioritize the list from most to least important. Write down specific details about each goal, such as the timeline, the amount of money you’ll need and how much you’ve already saved. This will help you understand what it will take to achieve each goal and build a plan.
Look at where your goals fall on your list of priorities and your timeline to determine which to address first. For example, you could have a short-term goal of taking a vacation or buying a new home. You may have longer-term goals, such as retirement, paying for a child’s college education, or giving to charitable causes. Priorities are personal and differ from person to person.
Keep in mind that it’s possible to save for more than one goal at a time, especially mixing short-term and long-term goals. For example, you could put money away for a vacation while continuing to contribute to retirement accounts.
“Knowing what’s most important to you will help you determine how to set money aside and how to adjust when setbacks happen,” says Darr. “The financial priorities make it easier to make decisions in an optimal way.”
Once you identify your goals, ensure your basics are covered. Depending on your stage of financial planning, these may either be on your list of goals or you may already have accomplished them. It’s a good idea to revisit them, though, to make sure you’re still on track.
Build an emergency fund. It’s important to have funds set aside for unexpected scenarios, such as medical expenses or a job loss. A good starting point is to have three to six months of your living expenses put into an easily accessible savings account.
Pay off debt. If you have outstanding high-interest debt, such as credit cards, pay that off before saving for other goals. Freeing up money in your monthly cashflow by reducing expenses can help you get more traction on achieving your goals.
Save for retirement. Put aside money for retirement on a consistent basis. The earlier you begin, the more you’ll benefit from the magic of compound interest. Start by taking advantage of an employer-sponsored 401(k) plan and employer match. If that’s not available to you, there are many other retirement accounts available to support your goal, such as IRAs and annuities.
Having these financial basics in place gives you a strong foundation to build on when pursuing your other goals.
Just as with fitness or career goals, tying your financial goals to specific motivations makes them more meaningful. As you review your goals, reflect on the purpose behind each one. What is the underlying motivation for it? Who is the goal going to benefit?
For example, a goal of setting up a trust might be tied to a larger desire to feel more secure about your family’s future. “When documenting the detail behind the goal, get into the specifics,” says Darr. “Understanding the ‘why’ helps you become more committed and understand how the goal is associated to other goals.”
Now that you’re armed with your goals and motivations, the next step is to understand how they all work together in a financial plan. You can either do this work yourself or get help from a financial professional to understand how you’re positioned to achieve your goals.
One place to start is taking inventory of what you have and consider what you need. Document your income sources and expenses. Knowing how much money you can allocate to different goals each month gives you clear direction on how to move forward.
Then, use your goals and their timelines as drivers for your financial plan. For example, if one of your goals is to buy a lake cabin, knowing when you want to buy that cabin and how much it will cost will inform decisions for your financial plan.
Once you learn how to identify financial goals and have your plan in place, keep in mind that your framework will evolve over time. Life changes and other factors can affect your financial goals. It’s important to review your goals at least once a year to adjust expectations, chart your progress and review your priorities.
“Any time something changes in your life or financial situation, it should be an indicator to review your goals,” says Darr. “Your financial goals are an ongoing process that provide clarity and confidence for the future. You’re building a vision for the things you’re dreaming about and want to accomplish. Start the process and see the possibilities unfold.”
When you take the time to reflect on the purpose behind your financial goals and put them in a realistic framework, you’re more likely to stay accountable to—and confident in—your financial plan.
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