Everyone has goals, and financial goals definitely take up a big bulk of them. Yet most of us have lofty financial dreams that involve money that drops from the sky. Purchases like the downpayment for real estate, a car or even a post graduation trip occupy our minds.
But the first step to achieving these goals is to have a plan. So let’s break it down to simple steps!
1. Figure out how much your goal is
$1 million please
The common mistake that people have when it comes to goal setting is forgetting to quantify it. Whether it’s your dream holiday, the latest laptop that got released, a new car, the first step is to quantify the amount. What is that number you need to have in order to make this purchase. Do a little research and keep a note of this amount, so you know what you are realistically working towards.
2. When do you wish to achieve your goal
in 10 years
This is an extremely important consideration. For larger goals that will take more time to achieve, we need to take into account inflated prices. If you are aiming for a property in 5 years, the same property is unlikely to be priced the same 5 years from now.
So take future costs into consideration and plan around the future amount you would need. If you’re planning for even longer term goals like your retirement, do account for the effects of inflation.
READ MORE: How Does Inflation Affect Your Bank Balance?
If you need $2000 for expenses today, the amount will be doubled to $4200 in 30 years. Try out our retirement calculator to help you figure this out.
3. Break it down into smaller achievable steps
$1 million / 10 years = $8,333/mth — oops?
The dream holiday is going to cost $9,000, and is scheduled to be in 18 months time, this means that you will need to save $500 each month for the next 18 months. And if that is too much for you to save each month, you could either delay your trip or relook at how you can travel with a lower travel budget. Breaking down your goals also help you to be more consistent in getting closer to this dream, rather than crossing your fingers for a big bonus.
4. Consider financial tools to achieve your goals
At a 5% return rate per year, you only need to put aside $6,310/month, instead of $8333/mth at 0% return rate
Depending on the time you have set to attain your goal, you can consider growing your funds with financial tools so that you can either achieve your goal earlier!
This also helps you to use less of your savings to reach your goal. The further away your goal is, the more flexible you are with choosing the right financial tools to help make it a reality!
5. Track your goal
Let your system work for you
What’s a goal when you don’t look towards it? Keep track of your progress along the way. This might be taxing with the many tasks we are already handling. So try to automate this process. Use an automatic standing order to transfer funds from your salary crediting account into your savings account each month, set it once for the period you need to achieve your goals.
This way you can safely spend what you have left in your salary crediting account without derailing your goals. To keep track of your progress, use good ol excel sheets, notepads, or try out the Planner Bee app which makes the whole process of keeping track of your expenses much easier.
6. Celebrate your success!
Yeah I’m a millionaire!
Setting a goal that is quantified and defined to your cash flow will help you to reach the goal with confidence. Set your goals and take charge of them. Start small as a warm up and then start stretching yourself with bigger goals!