Do you have long term financial goals and a plan to reach them? If not, developing them will be time very well spent. Having goals gives you a concrete idea of where you want to go. And having a plan helps you avoid getting lost on the way there. Keeping your overall long term financial goals and plans solidly in the front of your mind helps you manage not only the large aspects of your financial life, but also the smaller, day-to-day things as well.
Most people are pretty good at setting short term goals - financial or otherwise. They’re relatively easy because the reward of reaching the goal happens quickly. But it can be a bit harder to remain focused on long term goals. Life isn’t supposed to feel like a constant grind, but to some people, that’s exactly how long term goals - especially with regards to money - are perceived.
Identify Your GoalsSo how do you go about setting realistic long term goals and a plan to reach them, while staying true to your own values and living a great life along the way? Start by identifying what your long term goals really are. Not what your parents want your goals to be. Not what you think your goals are supposed to be. Not what your friends’ goals are. What do you actually want out of life? What do you want to accomplish over the next 50 years? Write down your thoughts.
Take InventoryOnce you’ve established long term goals that truly represent what you want your life to be, bring money into that picture. How much do you need? What’s your timeframe? Will the things you want to do with your life continue to earn money, or do you need to sock away a good amount of cash now in order to do something later on that doesn’t provide an income? Do you love your job and want to do it until you’re not physically able to, or would you retire next year if you could and do something else entirely?
Write down your answers, keeping in mind the overall goals that are the backdrop for your financial goals. If you start with money and tell yourself that you want X amount of money saved by a certain time, without a clear picture of why and what you’re going to do with the money, you might find that it becomes difficult to stick to your financial plan, especially when faced with financial temptations and the various hiccups of life.
But if you start with your goals - the things that you really want to do, regardless of money - and then determine the financial plan necessary to achieve them, you’re much more likely to succeed.
Map it OutOnce you’ve got your goals written down and have a clear understanding of what’s necessary financially in order to achieve your goals, it’s time to chart out a clear plan. Your goals are your foundation, and a solid understanding of what you need in terms of money is a good floor. But your long term financial plan to make it all happen is the blueprint for the whole building. Do you want to retire when you’re 50 and start volunteering full time for a cause close to your heart? Do you want to switch to a part time job ten years from now so that you can take extended trips to far-flung locations? Whatever your goals, you’re going to need a financial plan to get you there. If you don’t have a plan and just hope for the best, it’s unlikely that you’ll be successful. With a plan however, you stand a much better chance of achieving your goals, even if life throws you a few curve balls along the way.
Take ActionThe next step is to work your long term financial plan into your day-to-day financial decisions, and find a way to track your progress. This is a key element of success - the plan itself might stretch out over 40 years. Waiting 40 years to determine if you’ve hit your mark is a bit of a stretch - and not particularly rewarding along the way.
So instead, break that plan down into small chunks. For some people, annual goals are enough. Others might want to track their progress monthly or even daily. Whatever it is, you’ll want something that you can look forward to within a relatively short period of time. Maybe you set yourself a goal of reducing your current expenses by 25% within the next six months, and then maintaining roughly that level of spending over the next five years (avoiding lifestyle inflation will be a huge key to reaching your financial goals). Maybe your goal is to direct $500 each month into a savings or investment account, and then figure out a way to cut your expenses in order to live on what’s left over. Your short term plan needs to provide a solid framework for following your long term plan, and be something that you can track and feel successful about on a regular basis.
Your short term plan can help you make financial decisions that might otherwise seem inconsequential. Thinking about spending $50 on a new pair of shoes? If you’re not on track to meet your savings/spending goal for the month, stop and take a minute to re-read your plans and remind yourself of your long term goals. They’re probably much more important to you than a new pair of shoes, but if they’re just a distant picture in your mind, it’s easy to abandon them in favor of instant gratification. Having them laid out on paper and well meshed with long and short term plans to help you achieve them keeps them fresh in your mind and makes you much more likely to make choices that will benefit you long after that pair of shoes would have been sent to the thrift store.
About the Author:
Frugal Babe is a mid-30s American wife and mama who has been careful with money since childhood and loves the flexibility that her frugality has given her. She is the face behind the Frugal Babe website and a contributor to the CareOne Debt Relief Services blog, a community that provides debt consolidation and money-saving advice.