Setting Financial Goals and priorities
Written by Jim Yih •
When it comes to personal finance, too many people wander aimlessly focusing on the ‘now’ and everything that needs to be accomplished immediately. Setting goals is very powerful and can be very rewarding simply because it sets a foundation for future success. Setting financial goals starts the path or journey to developing a plan or strategy to achieve it.
Related article: Setting S.M.A.R.T. Financial Goals
I find so many people skip this important step in their path to financial independence or retirement. Some people make an attempt to set goals but they may not do it properly. Skipping goal setting can certainly still lead to success but maybe success by chance instead of choice. On the other hand, setting goals can increase the likelihood of success because it starts a plan. This reminds me of the old saying “People who fail to plan, plan to fail.”
Three steps to setting financial goals
Step 1: Establish your financial priorities
One of the challenges to the world of personal finance is it’s such a big space. Financial planning can mean so many different things. When I think of financial planning, here are some of the areas I think about:
1. Financial Organization – dealing with the basics of money management like using the net worth statement, income statements and paper management
2. Debt management – how to reduce, manage and pay down your debts like mortgage, credit cards, lines of credit, etc.
3. Managing your spending – Do you live within your means? Are you and over spender? Do you need to lean about budgeting and expense tracking?
4. Saving money – how much should you save? Is it better to use RRSPs or TFSAs? When do you have enough?
5. Career and Work – Are you happy with your work? Are you making enough income? How can you improve your work and income?
6. Tax Planning – It’s not how much you make that counts but rather how much you keep after tax that makes all the difference.
7. Retirement planning – when do you want to retire? Can you retire? Do you have a plan for retirement?
8. Estate planning – have you thought about an estate plan? Do you have a will? An enduring power of attorney? A personal directives? Have you thought about what will happen if you die or get disabled?
9. Risk management? Are you protected from financial disaster? Do you have enough life insurance? Do you have disability coverage?
10. Investing – Do you know what you are investing it? Do you participate in the management of your portfolio? Have you reviewed your portfolio?
11. Saving for children’s education – Are you utilizing RESPs? Have you looked at other ways to save?
12. Working with financial advisors? – Do you need help from a financial advisor? How do you find them? How do you work with them better? How do you pay them?
Once you have review all the different facets of personal finance, it’s important that you recognize your areas of strength and weakness. It’s important that you establish goals around these strengths and weaknesses.
What are your financial priorities for the next year? 3 years? 5 years or more?
Step 2: Establish some specific goals for improvement.
0There are a few different approaches to this step. The first is to set a goal in your areas of weakness. Weaknesses are easy places for improvement.
Sometimes it is hard to get motivated to work on your weaknesses, so the other thought is to set some goals around your strengths. Even though these areas represent your strengths, it does not mean you cannot improve in these areas.
The third area may represent topics that you are not sure about or maybe do not have a lot of knowledge about. It may be an area you have not thought a lot about. In this case, setting some research goals may be useful so you can learn about these areas.
Come up with a list of goals around your strengths and weaknesses. Remember that goals need to be specific and realistic. The best goals also have a specific time frame to reach that goal.
Step 3: Setting Financial Goals
WHAT IS YOUR GOAL?WHEN DO YOU WANT TO ACCOMPLISH IT?WHAT ACTIONS ARE REQUIRED?
Step 4: Monitor your progress
It’s important to develop an action plan. Goals cannot be met without action. These actions need to be monitored. Sometimes it’s important to break down your goals into smaller milestones. It’s OK to make adjustments to your goals as necessary. Achieving goals starts with finding a balance between setting goals that can be accomplished but still challenging enough to be rewarding and interesting.