Literacy Month Continues with Financial Goals
Whether your aim is to pay off your credit card debt, save for retirement, or work on another money goal, learning how to set financial goals is important.
By Shelley Koehli - Licensed Insolvency Trustee with D. Thode & Associates Inc. Vancouver
Week Two – Financial Goals
Last week we discussed Starting a Budget Before setting your financial goals it is important to have reviewed your budget.
Think about them. If you have a partner, talk about these goals with them. As a family, you may have differing goals for your finances; use this as a tool to come together on prioritizing financial goals for the whole family, before you get into financial trouble.
Savings are so important in order to have a successful financial future. I look at savings as like the foundation of your home: if your foundation is strong, it holds and supports everything else. If your foundation is weak, things could crumble easily.
Once you have a good handle on your monthly budget, you should have an amount each month that you can dedicate to savings. Knowing how much you have to work with is the first step, then setting timelines for goals and coming up with a monthly amount. Don’t forget to prioritize your goals.
1. Short Term – Achievable within 1 year - The most important short-term goal is to have an emergency fund. These are funds that will cover you if you find yourself short to cover an unexpected cost or an unexpected loss of income. Experts recommend having three to six months of the equivalent of your expenses saved. This may not be realistic for each person, but you can adjust it to fit into your budget.
2. Medium Term – Achievable within 1 to 5 years - Medium term goals can be the fun goals. Maybe there is a vacation you want to take or a large purchase you want to make.
3. Long Term – Achievable within 5 to 10 years - With long term goals you want to think about down payments, retirement savings or educations savings for your children, or a combination thereof.
It’s very important to write down and prioritize your goals as you are more likely to achieve them. Here is an example worksheet:
Don’t forget that you can extend the target date or reduce the cost of the goal in order to make it work with your budget. If you have enough of a surplus of income over expenses, consider working towards more than one goal at a time.
You may want to consider setting up separate sub-accounts for each of your goals; this will allow you to segregate the money from your day to day banking account.
Now you have the tools to set financial goals and start realizing on them, have some fun with it.
Shelley Koehli is a Licensed Insolvency Trustee and Chartered Insolvency and Restructuring Professional with D. Thode & Associates Inc. in British Columbia.
Please come back next week when we discuss Be a smart financial consumer.