Tips for setting, reaching financial goals

Whatever a person’s individual dreams, setting clear financial goals is a vital step toward making them a reality.

Nathan Harness, Ph.D., director of the Financial Planning Program in the Department of Agricultural Economics in the Texas A&M College of Agriculture and Life Sciences, offered his perspective on why setting financial goals is important as well as the most effective way to identify, prioritize and meet those goals.

Why setting financial goals is important

Whatever your dreams – large or small – setting realistic financial goals is critical for achieving whatever matters most to you. And understanding how to set these goals is essential for creating a financial framework that works for you by reflecting your personal priorities and values.

“When you set financial goals, you bring specific direction and purpose to your money,” Harness said. “Financial goals help you build a vision for the future for yourself and others. Specific and measurable goals help bring accountability and coordination to your financial life.”

Harness said it’s important to reflect on your motivations and intentions, as well as your dreams and desires.

“It’s not just about creating a checklist, it’s a powerful tool to bring together what you deeply value with your daily actions. This can bring alignment between your core values and life aspirations.”

Guidelines for developing financial goals 

Realistic financial goal setting is an initial step on a path that can help lead to a more secure and purposeful future, Harness said, adding a realistic goal should be:

• Achievable. Base goals on actual or reasonably anticipated income. Don’t count on a surprise inheritance or winning the lottery.
• Specific. A specific goal might be to buy a new car within 12 months or to save enough for a down payment on a house in less than four years.
• Measurable. Each goal should have a deadline, which might be the age at which you want to retire or the timeline for affording the once-in-a-lifetime vacation you’ve been dreaming about.

Harness said, as with many other personal goals, it’s important to know and understand the motivation behind them.

“Ask yourself about the real purpose of your goals,” he said. “Think about what motivates your decision and what you hope to benefit by reaching that goal.”  

He said it also helps to establish financial goals with a general time frame in mind.

“Short-term financial goals are usually those you hope to achieve within the next one to three years, while medium-term goals are those three to five years in the future and long-term goals are typically seven or more years in the future.”

He said short-term goals typically require investments with short-term maturity dates or savings vehicles that provide safe interest, if possible, and protection from a loss of principal.

“For medium-term investments or savings, you need to make sure you can access your funds without incurring a penalty,” he said. “And for long-term goals, you’ll want to consider investments that are more likely to yield better returns over time, such as the stock market. Of course, a financial planner can help you with making such investment decisions.”

Listing and prioritizing  

After identifying your goals, it’s important to prioritize them, Harness said.

“Write down your goals in the priority you want to give them, making sure they are clear and realistic,” he said. “And check on your goals from time to time to make sure you are on track and see how you are progressing.”

Harness said to note specific details about each goal, including a desired time frame to reach them, the amount of money needed and how much has been saved to date.

“These priorities can be different from person to person, so make sure these priorities reflect your values and what’s important to you and not someone else,” he said. “Prioritize short-, medium- and long-term goals, but do not forget that it is often possible to work toward more than one goal at a time.”

For example, he said, it’s possible to save for a vacation or to buy a new vehicle while also putting money aside for retirement.

“You can determine how much attention to give each of these goals based on your personal evaluation of their importance and adjust them if something changes.”

Money management basics to help achieve financial goals

Harness said after identifying goals, you need to put some financial basics in place to provide a strong foundation for pursuing your goals.

These basics include:

• Paying off debts. Paying off outstanding debts, especially any high-interest credit card debts, is a good start toward freeing up some of the money you need to save so you can contribute more resources toward your financial goals.
• Having an emergency fund. While it may seem like putting money aside for emergencies is a financial “detour” from saving for your goals, it is actually a vital safety net for preserving your net worth.

“It’s important to set funds aside for unexpected and potentially costly situations, such as losing a job or incurring substantial medical expenses,” Harness said. “A good rule of thumb is to have enough money stashed away in an easily accessible savings account for covering three to six months of normal living expenses.”

Changing or modifying financial goals

“After you have identified your financial goals, it’s important that you realize these may need to change or evolve based on various life changes or circumstances,” he said. “While you should generally revisit your financial goals at least once a year, you should also revisit them when a significant change impacts your life or financial status. It can also be helpful to share your goals with a trusted partner or establish a relationship with a certified financial planner.”   

Financial goals should be flexible enough to account for changes in one’s life or view of what is most important, he said.

“Financial goals help you clarify your priorities and prepare for a future in which you have accomplished those things you have determined are the most important to you,” he said. “But it is not entirely static, and you need to be open to the possibility that these goals may need to be modified.”

Harness said to keep in mind the original motivation behind a particular financial goal and ask yourself if that motivation has changed for any reason.

“Be honest with yourself about your financial goals and your ability and desire to meet them,” he said. “Having realistic, purposeful and well-thought-out goals makes it more likely that you will feel confident about those goals and will stay on track to achieve them.”