Financial freedom doesn’t have to be elusive. On the contrary, all it requires is a roadmap and committed action. The beginning of a new year offers the perfect opportunity to do so.
The process begins with defining your objectives. Setting goals puts you on the path to financial security, while taking care of obligations, allowing for unexpected expenses, and planning for your retirement.
We all know what we want to achieve. Yet, the emotional issues many of us have around money often prevent us from addressing our finances, leaving us to regret not acting in time. However, with some careful thought and a strategic action plan, it’s fairly straightforward to turn your dreams into reality. To improve your chances of success, you need to follow a strategic approach to financial goal setting. A step-by-step approach can help.
Define what success means to you
If you were to look back on your life at a later stage, what would you have liked to have achieved? Why is that important to you?
Once you answer these questions, quantify them in concrete terms. Go beyond vague ideas of financial freedom. It isn’t enough to want a home of your own, try and define what kind of home, where you want it to be, and how owning it will change your life; Or perhaps you want to build up an emergency fund worth six months’ expenses.
By understanding and clarifying your desires, you set goals that accord with your personal values. Success requires commitment and perseverance. If your aims don’t reflect your intrinsic beliefs, it’s unlikely you’re going to put in the work to make them a reality. But when you recognize how achieving your aspirations will enrich your life, the knowledge provides a sense of purpose that prevents disappointment and frustration.
Examine your personal situation
Once you know where your destination is, you can map out a route to get there. To do so, it helps to have a clear idea of your current financial situation. Using paper or a spreadsheet, assess your income, expenses, investment, and net worth.
A clear understanding of these elements will indicate the size of the task ahead of you and allow you to prioritize your goals. If you don’t have a job or a regular source of income, for example, that takes priority over everything else.
Consider three types of goals
Financial experts recommend establishing targets for the short term, medium term, and long term. By putting a time frame around your goals, you are able to pace yourself – and again, head off any exasperation at not being able to achieve things quickly enough.
Short-term targets are smaller, easily actionable items that boost your confidence and spur you on to the bigger-ticket items that take more time. Such quick wins should be items you can achieve within a year and may include creating an emergency fund, paying off your credit cards or opening a systematic investment plan.
Mid-term aims require three to five years to come to fruition. Examples include paying off your student loans, starting a business, collecting money for the down payment on a home loan or planning for a dream vacation.
Bigger ambitions, such as buying a home, are necessarily long-term plans because of their larger ticket size. Such intentions typically also include setting aside money for your retirement or leaving a legacy for your family or an endowment for your favourite cause.