Without goals, it is hard to save money and stay financially healthy. Goals force you to develop financial discipline and free you to dream about what you can accomplish with the resources you have.
At any given time, you should have a mix of long-term and short-term financial goals. Ideally, your short-term goals will contribute to a larger long-term goal, like achieving financial security.
Long-term goals can take decades to reach, and they can include many steps. Short-term goals can be accomplished in anywhere from a few months to a couple of years. These are still things you have to plan and budget for, but they take a lot less time and money than, say, saving for retirement.
Short-term financial goals go beyond your regular expenses and occasional splurges on entertainment or luxuries. They include things like:
- Going on vacation
- Committing to a home improvement project
- Saving for a wedding
- Creating an emergency fund
- Paying off credit card debt
- Preparing for a baby
- Starting an IRA
- Moving into your own place
- Buying a new car
A financial goal does not have to be limited to things you save money for either. It includes concrete steps you want to take to put yourself in a better position financially (like lowering your cost of living or increasing your income).
The key is to create goals that are important enough that you will work toward them and close enough that you can actually reach them. Here are 10 tips to help you set strong short-term financial goals.
1. Think about your long-term goals
This may sound like the opposite of what you are trying to do, but remember: good short-term financial goals build on each other, and they should contribute toward your long-term goals. Even if you have not formally defined your long-term goals, you probably have some vision of what you would like your financial future to be like.
Do you want to own your own home? Get a rental property? Pay off your student debt?
Most people want to retire by their mid-60s at the latest. When they say that, what they mean is that they would like to live comfortably in their old age. That does not simply happen on a whim. Social security is rarely enough for people to enjoy the kind of retirement they want. A comfortable retirement takes years of financial planning, and it encompasses numerous short-term goals.
If retirement is on your horizon, you might want to focus on some short-term goals like:
- Opening an IRA
- Maxing out your 401K contributions
- Saving for a down payment on a house
- Paying off individual debts
This does not mean you cannot also have short-term goals that address more immediate needs or comforts, but if you think retirement will be important to you someday, then you should take the steps that you can right now to make sure it happens, and find overlaps between your immediate and long-term interests.
2. Build a list of all your biggest needs and wants
Chances are, you already have some short-term goals in mind, whether they are things you urgently need or simply want. Before you start planning around specific short-term goals, there are things you can do to make sure you have the best goals.
For starters, you can identify all of the potential goals that should be on your radar right now. Take inventory of all your needs and wants that you think are worth setting money aside for.
Do you have debt you need to get rid of? Is there a home improvement project that would increase your equity or quality of life? Is there a vacation you have been dreaming of? A wedding in your future? Do you need a different vehicle?
This allows you to create a prioritized list, and it could help you set a series of short-term goals for the next few years.
3. Prioritize your goals
Once you have your list, try to group your short-term goals into categories, so you can see which ones improve your quality of life, which ones increase your financial security, and which goals you can probably do without. Then ask yourself:
- Which short-term goals connect to my long-term plans?
- How long will the benefits of each goal last?
- What happens if I never reach this goal?
- Which goals are hardest to achieve in terms of time, money, and sacrifice?
Giving yourself a wide range of goals to choose from and using a variety of criteria to rank them will help you choose the best goals instead of simply focusing on what is top-of-mind right now.
Prioritizing your goals does not just mean deciding which ones to focus on first. In order to actually achieve your financial goals, you have to make them financial priorities. That means you need to know where your money is going right now.
4. Look at your current income and expenses
When you set your short-term goals, you need to have a thorough understanding of your current financial situation.
This is not just about determining how much you have leftover each month either. When you do not have goals, it is a lot harder to save money. You do not have to weigh each purchase against some larger desire, so you wind up spending more of your income on things you do not need.
Your leftovers will probably not give you enough to reach your goals in a timely manner, and once you incorporate your goal into your budget, you will likely find that there are some areas where you would be willing to cut back.
Maybe you are spending more on food, clothing, or entertainment than you would like to. It is a lot easier to make sacrifices once you have your finances in front of you—you can see specifically what kinds of expenses are holding you back from reaching your goals.
The nice thing about short-term goals is that you can make temporary sacrifices to reach them faster. While permanently lowering your cost of living is ideal, cutting back in specific areas for a few months can have a huge impact.
Choosing to live temporarily in a cheap apartment, for example, can be a great way to save for a down payment on a house or pay down your debt. It may not be as comfortable, but it could free up the income you need to achieve your goal in a timely manner.
5. Create a timeline to complete your goal
Many short-term goals can take months or years, depending on how hard you work to reach them. If you do not already have external pressure to finish your goal by a set date (such as a baby’s due date), it would be wise to give yourself a deadline.
Without a target date, there is no pressure if you miss a few months here or there, and you have no way to gauge if you are off track.
Even if your timeline is arbitrary, creating one pushes you to compensate for times where you neglect your goal or experience a financial setback, and it encourages you to track your progress toward your goal every month.
6. Consider how an emergency would affect your life
Only 39% of Americans say they have enough savings to cover a $1,000 emergency, and 40% say they do not even have enough to cover an unexpected expense of $400. That is why one of the first short-term goals on most people’s lists is to create an emergency fund.
Unexpected expenses are inevitable. Things break. Medical problems can come out of nowhere. Companies have layoffs. And disasters—both big and small—happen all the time. Without a financial cushion, even a small setback can completely derail your financial goals by killing your momentum.
If you do not already have an emergency fund, that should be a high-priority goal. Ideally, you should save 3 to 6 months' worth of living expenses. This is what most financial advisors recommend in case you lose your job. But that takes time, and it can sound daunting if you have been struggling to save money.
The reality is there is no magic number you have to save. The point is to provide a safety for when something bad happens. Even if your safety net is smaller at first, it is still much better than nothing.
The reason those stats about emergency savings is so shocking is because there are countless emergencies that could easily cost $400, $1,000, or much, much more. The more you can allocate to your emergency fund, the more types of emergencies you will be prepared to handle financially.
Starting small by saving $1,000 will give you a cushion against a wide range of smaller emergencies, so that is a good place to start.
7. Create a budget that accounts for your goals
Without a budget, you are coasting financially. You may have some vague sense that you have been going out to lunch too often or filling up your gas tank more frequently, but you cannot tell how much you are overspending in a given area. Creating a budget is a crucial step if you want to set smart financial goals.
Even if your goals are important to you, you will have a hard time achieving them if they are not built into your budget, because you will only have your bank account or credit card limit to guide your daily financial choices. A budget forces you to prioritize your expenses and plan to reach your financial goals.
With a timeline for when you would like to reach your goal, budgeting for your goal is simple: divide the cost of your goal by the number of months you have to reach it. That will give you the amount you need to put toward your goal in order to reach it on time.
Chances are, you will not have the income to cover this full amount. This is where it is helpful to start this process with some ideas for ways to save money, because you will need to do one or more of these 3 things:
- Lower your expenses
- Increase your income
- Extend your timeline
In most cases, the easiest thing to do is extend your timeline. Doing so increases the risk that you will encounter setbacks and abandon your goal—it also demonstrates that you are not willing to sacrifice any of your current expenses to reach your goal.
Creating a budget forces you to wrestle with your financial priorities and decide how your goals actually stack up. This is a tool to help you hold yourself accountable to your goal. That only works if you pay attention to how you are doing along the way—which is why you need a plan to monitor your progress.
8. Create a plan to track your progress
Once you have your goals, a timeline to reach them, and a budget that accounts for them, you need a way to see how you are doing.
Some goals can be broken down into steps or mini-goals. Maybe there are purchases you need to make in order to be ready for a big project. Or you have a series of smaller debts you want to pay off. Instead of treating it as one ambiguous financial lump, break it down into pieces you can slowly check off. Turning your goals into a to-do list will help you see that you are making tangible progress, not just shuffling money into an account.
Spreadsheets are an immensely valuable way to record your expenses each month—you can see at a glance how you are doing in each category you create. A lot of people are easily overwhelmed by spreadsheets, and thankfully, there is another way for you to do this—mobile apps.
There are numerous free and premium money management apps that are designed to help you reign in and track your finances. If you are comfortable hooking up a reputable app to your bank account and credit card, it automatically records and categorizes every purchase, and you can manually categorize them as well.
As far as tracking the amount you have saved toward your goal, you can create a dedicated account for it. This way you will not be tempted to spend it and you will not get it mixed up with your other savings.
9. Automate your savings
Since you already know how much you want to put toward your goal each month, why not automate it? You can set up your bank account to deposit that amount into your goal’s account on the day after payday. That way you know you are going to stay on track.
When you order coffee and ask to leave room for cream, the barista knows not to use up all the space in the cup. When you automate saving toward your goal, you are not just leaving room for cream. You are putting the cream in first, because you are prioritizing your goal over your other expenses.
10. Address things that have held you back in the past
There are lots of reasons why people never achieve (or even set) financial goals. Maybe you have been waiting for something—like a promotion—to make you feel like you were ready. Or your spouse has been opposed to your goals in the past. Maybe you have been waiting to set other goals until your student debt is gone.
Motivation and perseverance are vital if you want to achieve your goals. The harder your goal is to reach, the easier it is to make excuses, and the less friction it takes for an obstacle to become a major setback.
Get ahead of your excuses. Get aligned with your spouse and create goals you can share and work toward together. Set a short-term goal to make your student debt more manageable, include it in your list of potential goals, and see how it stacks up against your other priorities.
You will always have reasons not to put money toward your financial goals. You do not have to accept those reasons.
Are your goals achievable?
If you are still struggling to see how to actually reach your financial goals, we have more tips for you in The Beginner’s Guide to Setting Financial Goals. In this free ebook, you will find everything you need to start fresh and work toward your own version of financial success.