Financial goals are steps we stipulate in order to achieve a greater goal. Imagine a mountain with a beautiful view at the top, for example. The goal is to reach the top and your goals are the necessary steps to get there.
In the reality of personal finance, financial goals are very specific plans that determine how you earn and spend your money. Just like climbing a mountain, you can't reach the top with just one jump: you have to go through intermediate stages and fulfill smaller actions in favor of a greater purpose.
For example, if your goal is to pay off a debt, your goals might be:
- Cut expenses;
- Get an extra job in order to increase income;
- Exchange one debt for another with lower interest rates ;
- Reserve a percentage of the salary to honor the installments.
That is, financial goals are practical resolutions essential for achieving a goal. Incidentally, all these steps have pre-established periods to be fulfilled. This is what differentiates short, medium, and long-term goals. Understand!
These are those that must be completed within a year. Despite being faster achievements, this does not mean that this type of goal is only defined for smaller goals, such as a small trip, buying a special gift for the child, etc.
Short-term financial goals can also be a kind of groundwork to enable bigger goals. Before making a nest egg to have a peaceful retirement, for example, it is necessary to organize finances and resolve financial issues.
In general, short-term goals are more urgent issues, such as paying off debts – especially those with higher interest rates – and creating an emergency reserve. Here are also simple attitudes that do not need a lot of time to resolve, such as:
- Exchange an expensive cell phone plan for a more basic one;
- Decrease spending and expenses;
- Earn money on weekends with extra jobs;
- Being an application driver ;
- Between others.
Medium-term financial targets must be met within a maximum of two years. Generally, they involve larger financial investments such as a wedding party, an international trip, a small house renovation, etc.
In that case, it's important to make a cost estimate to know how much you need to save per month to get the necessary money together. So the goals can be:
- Reserve a percentage or a fixed amount of income every month;
- Invest your savings to make money.
These are goals that take longer to achieve — at least five years — as they require a much larger financial investment. This is the case of buying your own home, the financial reserve to have a peaceful retirement or even achieving the goal of living on income.
Although there are short, medium and long-term financial goals, they are always interconnected in some way. That's because you can break long-term goals into smaller goals to feel that achievements are closer. It is a form of incentive to maintain commitment.
For example, you need to add R$50,000.00 to make a down payment on an apartment. Instead of setting a goal to add this amount over five years, you can divide the total needed for each year or month. In this way, your financial goal would be to save R$10,000.00 per year or R$833.33 per month.
This was a very simple account without considering any income. However, by making some financial investment with this reserve, it is possible to reduce the amount saved per month and, even so, reach the amount of R$50,000.00 in five years, as the money will pay off.
Your financial goal should be defined in stages, that way, you can plan better.
If your financial goal is not well defined, it is more difficult to reach your goal. This is because, often, what prevents the realization of some consumption purposes is not the lack of money, but financial disorganization.
Who has never set a goal at New Year's Eve, but hasn't moved a finger to make that wish come true, right? Generally, this happens because, in addition to these promises being very vague, they are not accompanied by financial planning with concrete actions and deadlines.
If these goals are only in the imagination, there is no way: they will not be achieved and the feeling of frustration really appears. Defining clear and specific financial goals is a way to bring this goal closer to reality and generate motivation to accomplish what was planned.
In addition, establishing an action plan is essential to estimate the timeframe you need to achieve the purpose.
