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:
Expenses that you need to pay ASAP, like credit card debt, student loan, mortgage, car loan, etc.
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!