Forward thinking: financial goals15 Nov 2022 4 min read
When we have a fitness goal in mind, we generally know what we need to do to achieve it. Whether it’s making sure we are drinking enough water or swapping a café catch up for a coffee and walk, we can usually identify what changes we need to make. When it comes to managing our money, the principles are the same. We set goals that help us stay on track and remember why we’re avoiding the temptation of instant gratification.
The first step for creating achievable financial goals is to work out the current state of your finances, by mapping out your assets and liabilities. It’s a good idea to go back over your last few bank and credit card statements and look at what you’ve actually spent your money on. You can also use tools like the net worth calculator on the ASIC Money Smart website.
Seeing the reality in black and white can be scary, but it's the first step in making changes that will improve your financial fitness.
Why your money mindset matters
Before working out your goals, you should approach your finances with the right mindset. Many people think that the only way to build wealth is to earn more money. But with the right tools and motivation, you can control your spending and build your wealth and savings.
Having different financial goals with different timeframes is essential to stay on track. If you just had the one goal of being financially independent in retirement, then it would be almost impossible to stay on track — it’s too far into the future, and too difficult to see what you’re achieving along the way.
Short, medium and long-term goals
The timeframe of a financial goal will influence how you choose to save or invest your money. There's no formal definition for short, medium and long-term goals, but a good guide is:
- 1-4 years for short-term
- 5-9 years for medium-term
- 10+ years for long-term.
If you have a short timeframe you might keep your savings in lower risk assets like a bank account or term deposit. If you have a longer timeframe you might choose riskier assets like shares — the idea being that you have time to ride out any potential negative movements in markets.
Reviewing your goals
Taking the time to review your goals is just as important as setting them in the first place, giving you the opportunity to reassess your priorities. How has your life changed and how does that affect your goals? Try to look at your financial plan once a year or so — tax time can be a good reminder.
Top tips for goal setting
Ready to put theory into action? Here are our top 4 tips:
- Be realistic — It’s great to have aspirational goals, but it is critical that they are achievable for your current financial circumstances. When you have a big goal in mind, work backwards to map out how you can reach it and then adjust the goal as needed.
- Learn from your mistakes — Mistakes happen and almost everyone will fall off their savings bandwagon occasionally. What’s most important is getting back on track. Acknowledge what went wrong, make any required changes and then get back to working towards your goals.
- Talk about it — Money shouldn’t be a taboo or awkward topic between friends and family. Understanding each other’s ambitions and personal financial goals is a great way to pick up new tips and tricks.
- Never stop learning — As well as talking to family and friends, try podcasts (like The Money Café or The Pineapple Project), books and even Instagram hashtags like #debtfreecommunity, #financialfreedom and #frugal for some serious financial inspo.