Monthly Archives: August 2016
Short, medium and long-term goals
Now that you know how to establish your goals and how to know exactly the amount of money you can assign to achieve them, it’s time to think about some goals that will help you get a better control of your personal finances.
How to establish financial goals
Now that you know yourself, The next most important step in establishing a plan is without a doubt, the goals you set. In order to achieve any goal in life you need to be disciplined and also have a good enough plan to accomplish it.
As Dwight D. Eisenhower said: “Plans are nothing; planning is everything” But what exactly does this mean? It means that if you want something, you need to work hard for it.
When you are planning to do something for a long time (or for the rest of your life in this case), you have to break the final goal into smaller ones. This will help you to have a feeling of achievement every time you accomplish every goal you set.
If you are one of those people that have the same plans since 3 years ago, this can be because you need to establish better goals.
Why is it important to establish goals?
First of all, establishing goals help you to have control over your finances and not the other way: letting your finances to have control over you. This means that you NEED to have a financial plan, something that helps you to take control over your finances so that you can reach your goals instead of just paying all the expenses and some pleasures for yourself.
The base of every good financial plan is to have a personal or family budget. But first, you need to know what are you spending your money on and how much money you are able to save/invest at the end of the month. This residual income is the one that you are going to use to establish your financial goals.
For this step, make 2 columns:
Necessary expenses
Expenses that you need to pay ASAP, like credit card debt, student loan, mortgage, car loan, etc.
Desires
Things that you want to do but are not something necessary. Like changing your car, travel to another country, get a new gadget, things like that.
These 2 types of expenses are going to compete with each other, but it is your duty to prioritize every single expense. What is the most important thing to you? Are you willing to wait longer to pay that credit card debt? Do you want to travel the world first? You need to take into consideration how every decision is going to affect your future plans.
Your goals need to have the following characteristics:
- They need to be specific: You need to know exactly what you want, how you are going to do it and when you are going to do it. It’s not the same to say “I want to pay off my credit card debt” to say “I will pay the $7,000 credit card debt in 6 months”
- Measurable: You have to be able to tell when a goal is considered as accomplished.
- Easy to agree on: If you are not alone, meaning that you have a girlfriend/wife/family, you need to have goals that work for everybody. You can’t decide everything for yourself if your decisions are going to affect someone else.
- Realistic: It is really important that you be disciplined, but never set goals that are impossible to reach. For example, don’t say that you will save $3,500 monthly when your monthly income is $4,500, unless obviously you are fully capable to do it.
Also, be aware not to overwhelm yourself with a lot of goals, set 3 to 5 goals each time you analyze your situation. Then after a few months, revisit these goals to see what have you accomplished and to add a few more if needed.
Once you do this, you are on the right way to have a better control of your finances!
First step in Personal Finances: Know yourself!
The concept of Personal Finances is actually pretty simple. Finance is the study of everything that has to do with investing. But this does not refer to money only since it also includes every asset and liability and how they are managed over time. Personal, on the other hand, means that it is applied to oneself.
On the Finance topic we have a LOT of sources of information. You can quickly search any finance related topic on Google and you will instantly find whatever it is that you need. When you examine the personal part though, it is a little different since it involves knowing yourself as much as possible. It is not good if you think something like “I will save 50% of my monthly income for the next 6 months” and then you spend a lot of money on the first thing you come across. You have to ask yourself a few questions and be completely honest in order to elaborate a perfect plan.
Knowing yourself takes time
You have to consider that this is something that takes time since it is a constant process that will develop after making mistakes and learning from them. You can’t expect to fulfill all your goals on the first try, and that is totally fine.
Also, as time passes, your goals will most likely change. If you are in your 20’s, your first priority may be to travel around the world. at age 25 you may want to save money to buy a house and start a family. Or maybe you have children and you want to make sure that they have a good college education when they grow up. If you know yourself you will be able to adapt your habits to the goals you have.
Questions that you can ask yourself to start a plan
These few questions will help you to start making a plan to manage your personal finances; remember to be completely honest, otherwise the only one you will be affecting is yourself:
- If I set a goal, am I able to fulfill it without failing? If you are the kind of person that promises to lose weight as a New Year Resolution every year but you end up worse than when you started, you already know what to answer here. But hey, at least you know what you need to work on.
- How much money am I actually able to save up monthly? This amount is the result of deducting your monthly expenses to your monthly income. But remember to also consider expenses for things that you like to do. Discipline also means to have fun with a set budget.
- What would I like to do/have 1 year from now? 3-5 years? 20-30 years? This is one of the most important questions since this will give you an idea on how to elaborate your financial plan for the next years.
- What do I plan on doing with the money until each goal is reached? This is where you will decide HOW and WHERE you will invest your money according to each goal you have. Short, medium or long-term goals will allow for different types of investments.
These questions above can be used as a reference by someone who actually wants to start planning to have healthier personal finances.
