Picturing your financial future can feel both exciting and stressful, and it’s easy to get overwhelmed. However, with our comprehensive step-by-step guide, you can begin your financial goal setting and start on your path to reaching your desired financial outcome today.
One of the first steps to creating your desired financial outcome is to get an honest idea of where you stand in your current financial situation. One of the best ways to do this is to calculate your current net worth. This will give you a great idea of how far away you are from your desired financial worth.
To calculate your current net worth, simply add all your assets and then subtract all your debts from that summation. Your assets include any real estate, accounts, bonds, vehicles, or other large items in your possession. Your debt includes all money owed, from mortgages to student loans to car payments.
Don’t be alarmed if your current net worth is in the negative—it’s better to be fully aware of where you stand so you can make concrete plans to help improve your financial situation and get to your goals.
Now that you have an idea of where you are starting from, it’s time to figure out where you want your financial outcome to take you. It’s important to be realistic when planning your goals. If they aren’t truly attainable, then you will only be discouraged as you put them into action. We recommend breaking out your financial goals into three categories:
Short-Term Goals: These are goals that can be accomplished typically in less than a year and may include paying down smaller debts, such as credit cards or car loans. If you don’t have many small debts to work on paying off and instead have larger debts (such as mortgages or student loans) your short-term goals can be “stepping stones” — long-term goals broken down into smaller, attainable steps.
Mid-Term Goals: Mid-term goals take typically between two and ten years to accomplish. Perhaps in this phase of your financial plan, you begin paying off large debts (such as student loans) and investing more into other accounts, such as a 401K or Roth IRA.
Long-Term Goals: These goals typically take over 10 years to accomplish. They are the big-ticket items, like mortgages or reaching an amount in your retirement fund that allows you to retire comfortably. Although they have a longer time horizon, these still need to be attainable so that you have concrete goals to work towards in the future.
We recommend creating 5-10 attainable goals for each category. We also recommend keeping them measurable and very specific. This will keep your expectations clear and will allow you to hold yourself accountable more precisely.
Now that you have made your goals and organized them into short-, mid-, and long-term categories, it’s time to put them into action. One of the best ways to accomplish this is to prioritize them from low to medium to high. This will help you stay focused on those that are most important and will give your financial situation the most impact.
After you’ve determined the priority, take the time to give them a target accomplished date. You don’t have to do this for every goal, but at least the high priority goals for each category. Create 2-5 concrete steps you can take to get closer to accomplishing this goal. You’ll want to consider the amount of money you will need to accomplish each step and how long it will take you to complete the goal. For example, if one of your high priority goals is to pay off your car loan of $10,000, you will want to determine how much extra you can pay each month to accomplish this goal. Then, work that additional amount into your monthly budget.
Remaining realistic is one of the best things you can do for yourself and your family as you are determining your path to your desired financial outcome. Big goals require big sacrifices. If you are not ready to make those sacrifices, then it may not be in your best interest to attempt that goal. Your mental health, happiness, and well-being are very important to goal setting, so as you are working through your goals, keep your quality of life in the front of your mind. Don’t plan for anything that you will not be able to attain or it will make you miserable as you work toward it.
One of the best ways to get the most out of your financial outcome is to work with a financial professional to ensure you maximize your income available to meet your goals. Financial advisors, tax strategists, and financial consultants can review your financial goals with you and help ensure they are attainable and your actionable steps are concrete enough to help you to accomplish them.
Bottom line: There are many ways to reach your desired financial outcome, as long as you have determination, clarity on your goals, and a solid plan for achieving them. If you need assistance with your financial plan, start with contacting us at Tax Saving Professionals. We’d love to help you get closer to your desired financial future.