Everyone’s risk tolerance with money is different, and people save money in various ways. Whatever method you choose, it’s helpful to set short-term financial goals. In this article, we’ll look at goal-setting as a way to position yourself for financial success and security. We’ll also touch on medium- and long-term goals.
Short-term financial goals are objectives that are achievable within a relatively brief time frame. This could be several months or a couple years.
SMART stands for specific, measurable, actionable, relevant, and time-bound. These criteria will help you understand exactly what you’re working towards and what success looks like.
If you set a vague goal, like “save more money,” you may save $10 one month and $20 the next, but is that enough and what are you saving towards?
Instead, a SMART goal would look like this: Save $100 per month in my savings account to save up for a used car in two years.
Below, you’ll find broad goals, followed by SMART goal examples.
Have a goal-setting mindset and set a few goals for yourself. It’s not a bad idea to split them into categories that contain short-, medium-, and long-term goals. Since short-term goals are the most immediate, they’re a good place to start.
This doesn’t mean you should forget about longer-range goals like retirement savings when you’re budgeting. However, setting and achieving short-term goals can help set the stage for success when you tackle longer-term objectives. Here are some ideas that can get you started:
Create an emergency fund worth 3-6 months of expenses. It’s always a good idea to have emergency savings socked away in case you need it for car repair, medical bills, or a means of handling some other unforeseen expense. Setting a goal like this serves two purposes: It can prepare you for the proverbial “rainy day,” and it can help you build good savings habits.
If saving for 3 months of expenses seems like a lofty goal, break it down to a number that’s within reach and adjust your goal as your income or circumstances change.
SMART goal: Save $75/month in an account just for emergency expenses. Add at least $2,700 to the account over the next 3 years.
Set a monthly budget for yourself. Start by identifying your money goals, then pick the budgeting approach that works best for you. You might choose zero-based budgeting, where you earmark every dollar in your income for a specific budget category: food, utilities, rent, entertainment, your emergency fund, etc. Once all this is done, you’ll be left with zero—a balanced budget.
You can also opt for a goal-based budget in which you “pay yourself first” for a specific goal, and adjust the remainder of your budget based on further aims. Another option is the 50-30-20 budget, which sets aside 50% of after-tax income on necessities, 30% on things you want, and 20% on savings and debt payments.
You can budget using pen and paper, the envelope method, a whiteboard, spreadsheet, or any one of a number of apps, some of which are free.
SMART goal: Try the 50-30-20 budget method for 12 months. I will create a spreadsheet of all my fixed and variable expenses. Categorize those expenses into necessities, wants, needs and debts, and then allocate my monthly income based on the 50-30-20 method. I’ll review my expenses and payments once per month to see if I’m on track and identify areas to cut back.
Take some time to create a financial planning worksheet for yourself or learn about personal finance. Financial literacy entails a knowledge of debt, credit, savings, insurance, and retirement, for example.
If you stress about money often, are spending more than you take in, don’t have enough savings to cover a financial emergency, or have high credit card balances. These are signs you may need to improve your financial literacy.
You can also meet a financial advisor or financial planner every year if you need to.
SMART goal: Read I Will Teach You To Be Rich in the next month. Change at least one thing about my financial habits based on the author’s advice.
It can help to focus on paying off one debt at a time. But which debt should you pay off first?
There are two common debt repayment strategies. The Snowball Method suggests you pay the smallest debt first so that you can see the progress you’re making. The Avalanche Method suggests you pay off the debts with the highest interest rates first. This approach can save you money because you will be paying off compounding interest that accumulates, adding to your debt even as you pay it.
SMART goal: Put $200 towards paying down my credit card debt every month. Pay off all the Visa debt in 8 months.
The first step is to understand your expenses. Look at your bank account statements and see where your money is going. If you’re spending more than what you’ve budgeted in one or more categories, revisit your priorities and adjust your spending.
It’s not just about spending, but how your spending aligns with your income. If you’ve seen a reduction in your income due to a furlough, layoff, or change in salary, you will need to revisit what you’re spending. Inflation can be a factor, too. If gas, utility costs, rent, or food prices are rising, you won’t be able to purchase as much with your money as you did the previous year.
SMART goal: Spend a maximum of $30 per week going out to eat. This will save me at least $100 per month, which I’ll use towards my student loan repayments.
If you need more inspiration, here are short-term, mid-term, and long-term financial goal examples. Remember, you might have a broad goal like “eliminate $100,000 in student loan debt,” but you’ll need to break that down into more specific subgoals to successfully achieve it. Where will that money come from? Are there areas you can spend less in to contribute more to your student loan payments?
In addition to short-term goals, you’ll want to work on a list of medium-term
financial goals: milestones that you’ll hit within the next few years. Goals like these are usually 2 to 5 years out. They typically require more savings than is needed in pursuing short-term debts, which means you’ll likely need more patience and planning.
Long-term financial goals are a type of objective that you might seek to achieve over a longer period of several years or even decades. These goals typically require more money and consistent financial discipline/investment to reach.
Setting goals helps whether you’re putting money aside for your emergency fund or investing in a long-term goal like purchasing real estate or a retirement plan. The clearer your goals are, the more effectively you can budget and work on staying out of debt as you’re building credit—an important financial goal in its own right.
Budgeting and saving are important parts of the process, and setting short-term goals is a great first step to get you on your way.
Jeff Smith is the VP of Marketing at Self Financial. See his profile on LinkedIn.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.