Setting financial goals can be intimidating but it is necessary in maintaining a healthy household corporation. The first step to setting goals is to identify what projects or accomplishments you want to reach within 12 months or less. These are called “short-term” goals and will typically cost you less than two months of your gross income. For example, if you make $30,000 per year then your gross income should be around $2,500 per month. Take this amount and multiply it by two months to set your short-term budget at $5,000 to be used or saved over the next 12 months.
Now that you have your target amount, the next step is to decide what action you are going to take. Ask yourself, do I have that money saved already? If the answer is no, then I highly recommend that saving is your course of action. Start by using your household budget to determine how much per paycheck you can save and then work to save $1,000. Once you get there, take time to celebrate and continue the process until you reach your short-term goal. Use the same method for paying off debt balances that are less than your short-term budget amount (i.e. those pesky credit cards). Many financial experts such as Dave Ramsey and others speak regularly about establishing an emergency fund that covers 6 months of your home expenses.
This brings us to our second step of setting “long-term” goals. The key for these goals is to determine exactly how much the action (savings or spending) is going to cost and then use your budget to determine how long it will take to reach that goal. Some examples are 1) saving for an international vacation, 2) paying off student loan debt, or 3) saving for the purchase of a home. Remember to make your goals reasonable based on the information you have today. In our example, it is not feasible to purchase a $300,000 home with an income of $30,000 per year nor is it feasible to pay off $150,000 in student loan debt. Ask yourself, will I die before I pay this off or save enough to purchase? If the answer is yes, major adjustments to your goal and/or income expectations are needed. Leave the risky decisions to the stock market and hedge fund experts.
The final step is to discuss your goals with your mentor, spiritual leader, or financial accountability partner. Do plenty of research and have the information ready for healthy discussion and/or debate. Two heads are better than one and once a consensus is reached…STICK TO THE PLAN! The key is not to stress about it. We all know that life happens and when it does, make your adjustments and get back into the grove. Setting reasonable goals combined with diligence, accountability, and support will give you the confidence needed to face and defeat any financial challenge.
Do you have a financial plan that you’re excited to implement in 2021? Maybe you have some saving tips that have worked for you! Do you need an accountability partner? Let us know in the comments below!
DR. GNP
ADVISE | TEACH | GOVERN
jennoa.graham@gmail.com | www.drgnp.com
Great article Dr. Graham!