In last week’s blog, we talked about how important goals are and how to set achievable goals using the S.M.A.R.T. method. Your goals have to be specific, measurable, achievable/attainable, relevant and time based so that you have a better chance of reaching them. Let’s get more specific though, let’s talk about financial goals, after all this is a personal finance page. When it comes to finances, what are those goals that you should be reaching for?
I’ll admit, it can get overwhelming thinking of all the things that you need to save for. There is retirement, an emergency fund, paying down debt, buying a house, for a vacation, investing, and if you have kids, money for their education. Then if you want to start a business, you need start-up money. It’s ALOT!!
When I started my financial journey, and I started to think about all these things, I had a mini panic attack. These are the thoughts that I would entertain, “There’s no way! There’s just no way I will ever be able to save for all these things, it’s too much. I’m barely saving money as it is!!!!” My heart is actually starting to beat faster just talking about it so believe me when I tell you, I understand.
But I got myself together by taking a few deep breaths and calming myself down. Rome wasn’t built in a day and my finances weren’t going to get fixed overnight. It has taken us YEARS to get to where my husband and I are and we still have a ways to go but it all started with that first step.
After I calmed myself down, I started to think about it logically, I’m a practical person. I see a problem and I start to create plans, excel sheets, timelines, to do lists. I guess that’s the military in me. So, here are my suggestions for which financial goals you should start working on first.
Financial goals are going to be different for everyone because we are all in different financial situations, different stages in our lives and we value different things. However, there’s two financial goals that apply to everyone. These two goals are the foundation for our finances and you should have them done or working on them, before you even start working on any other goals.
Financial Goal #1
It doesn’t matter how far along you are in our financial journey, if you don’t have this done, this is financial goal #1 for you: create a budget. You aren’t going to get anywhere if you don’t have control of where your money goes. You can’t work on any financial goals if you aren’t saving money, it’s that simple! No budget, no financial progress, no way around it!!
You need to know how much money you have for savings and this can only be done by having a budget and sticking to it. If you don’t have a budget, I do have a blog and a video to help you out: 5 Easy Steps to Creating a 50-30-20 Budget. It only has three categories so it’s a great budget for beginners.
Financial Goal #2
Once you have a budget, you can start working on financial goal #2: an emergency fund. The money that you are saving should be going towards your emergency fund before any other place; it is priority above all your other financial goals. If I haven’t stressed it enough in my previous blogs and in my videos, a budget and an emergency fund are your financial foundation.
In construction, the main purpose of a foundation is to support all the things that are going to be added to the foundation. In Matthew 7:24-27, there is a metaphor about building a house. Jesus is talking to his disciples and tells them, “Everyone then who hears these words of mine and does them will be like a WISE man who built his house on the rock. And the rain fell, and the floods came, and the winds blew and beat on that house, but it did not fall, because it had been founded on the rock.” Therefore, whether we are talking practical or biblical, a strong foundation is important!
Your budget and your emergency fund have to be solid so you can build on top of them. Working on any other financial goals before you have laid a strong foundation will only cause your financial structure to collapse. If you start working on any other financial goal and don’t have an emergency fund, that other fund will eventually turn into your emergency fund. Reach at least 10% of your emergency fund goal before you start working on another goal. By the way, when I say start working on another goal I mean you will be working on your emergency fund and this other goal at the same time.
Other Financial Goals
One of the most common problems I hear when I talk to people is that they don’t know where start saving first. Do they save for different things at the same time or save for one goal and then move on to the next one?
I like practical steps that I can follow and so I like to provide practical steps to help you along. So start by writing all your financial goals down no matter how big, using the S.M.A.R.T. goal setting method but leave out the time-based portion for now. If you would like a free worksheet to help you with this, click below.
How Much Are You Working With?
Now that you have written all your goals down write down how much money you are working with every month. If it’s only $50, well realistically you can only work on one goal. But if you are saving $300 a month, well now you can start working on several goals at once and obviously, the more you save each month, the faster you are going to be able to reach your goals. You need to know how much money you are able to realistically allocate towards your financial goals every month. No guessing, no estimating.
A few weeks ago, I was talking to someone about her finances. She estimated that every month she had about $700 left over after paying all her bills. The first thing I told her is that she can’t estimate; she needs to see those numbers in black and white. We all have a tendency of underestimating.
She does save $50 a month so at least she’s saving something but $700 is a lot of money to be spending on “just because stuff” each month and she couldn’t even tell me what she was spending it on. I told her that she should increase her auto save from $50 to $200 and yes, that means she will have to adjust to her new wants budget, but she will go from saving $600 a year to $2,400 a year. The money is there every month, she just needs to reallocate it.
If I Was Starting All Over Again
Once you know how much you are working with, you can determine how many goals you can work on. But if I had to do it all over again, here is how I would prioritize my financial goals:
First, of course is an Emergency Fund. This safety net will keep you from having to go into one of your other financial funds when something unexpected happens. I have talked about the importance of an emergency fund numerous times in previous blogs. If you don’t know why an emergency fund is so important, read my blog Creating an Emergency Fund.
Second, would be paying down debt. You are throwing so much money down the drain when you are in debt with the interest that you are paying. Not only that, but those monthly credit card payments are tying up money that you could be using towards other goals. I’ve worked with a few people to get their finances in order and on average, they are paying $600 in credit card payments each month, and that’s just making the minimum payment. Once you pay off your debts, that monthly amount can be put to work for you somewhere else every month.
Third, t would be saving for retirement and this one could even get bumped up above paying down debt, as long as you are still making the minimum payments on your credit cards. If your employer matches your 401K contribution AKA retirement fund, you should be maxing out the amount they match.
In case you don’t know, there are employers that will match up to a certain percent of what you put in there. Let’s say you work for a company that will match 4% of what you put in. 4% of a $50,000 yearly salary is $2,000. That is the minimum amount you should contribute every year because your employer will also put that same amount into your retirement account which comes out to $166 per month.
If you aren’t contributing the maximum amount of money that your employer will match you are leaving free money on the table or free chicken as they say in the military! If you don’t know if your employer matches your contribution, call your HR department. If they do, right then and there do whatever paperwork needs to get done so you can contribute the maximum amount your employer will match. Out of sight, out of mind.
Now we are left with those other goals that are unique to every individual: down payment for a house, saving for a vacation, investing, college money for your kids, start up money for a business, etc. You have to prioritize these things according to what you value and what your situation is. Prioritize these goals based on what is most important to you and then add them to the other goals we just discussed.
Once you have your goals listed in order, now you can go back and add a deadline to your goals. At this point, you have determined how much money you will be putting into your first goal and you can now put a realistic deadline on that goal. If you stick to your deadline and your budget, you can determine when you will be able to work on the following goal.
Setting financial goals will keep you focused, keeping you mindful of every decision that you make which affects your goals. If you are starting your financial journey and would like a step-by-step guide on how to move forward, I have created a playlist on my YouTube channel, “Financial Basics”, if you want to check it out.
I’ve heard from some of you on how you have been making small decisions that are empowering you over your finances. It’s exciting and makes me so happy because that is exactly why I created this website and my YouTube channel. If you have made any financial changes based on any of the tips I have given in my videos, be sure to let me know. Let’s get the financial basics down so we can level up!
To Your Finances,