When setting goals for most situations, such as your career, you first set short-term goals that support long-term goals. With personal finance, you want to look at your goals more or less in reverse order.
First, you need to determine where you want to be financially during your later years of life, such as when you reach retirement and are no longer earning money from your career or business. Then, you should allow these long-term goals to drive your goal setting for the near term.
However, you still have to be sure your financial goals allow you to meet today’s needs. It would not make good sense to set a goal to save X dollars, if that means you cannot make the mortgage payment on your home today. (After all, your home is an investment and one of the biggest savings accounts most people ever own.)
Let’s look at a person who wishes to retire in 30 years with $1 million in assets available during retirement. That goal would reflect the long-term, ultimate goal. It can be achieved, and perhaps even more, with dedication and the willingness to apply self-discipline.
Next, look at the family’s debt load. Paying off debt as quickly as possible can allow you to save and invest money into growth vehicles to reach your goal. Paying high interest rates on credit cards will hinder your achieving your financial goals. Establish a goal for paying off all credit card debt and any other short-term debt as quickly as your income permits.
Determine that the money you have been using to pay these debts will, once the debts are paid off, be placed into your savings and investments to accumulate wealth. Since you have been spending the money by sending it to credit card companies, you’ll be able to pay yourself that same amount without even missing it each month.
Set an ultimate personal financial goal for yourself and your family, and write that goal down. Reflect on the goal, and alwayskeep it in mind. Remind yourself daily of your goal, and remind your family members of the benefits they will enjoy by working toward that goal.
Know that you can achieve the goal if you focus on it daily. Never allow anyone to convince you that you cannot achieve your goals and dreams, because you truly can if you only work methodically toward them.
Next, you must look at your spending patterns, as well as the spending patterns of your family. Where does your spendable money go? For a period of one week, keep a spending journal and ask every member of the family to do the same.
Write down every single thing you spend money on each day. This list isn’t for including the expenses you have to pay for the household such as electricity, mortgage, and water. It should be used for tracking your personal, unplanned spending decisions.
While your children may only have an allowance to account for, you want to note any extra money provided to them from your pocket. You also want to ask your spouse to keep the same type of spending journal in order to get a complete picture of how your family spends money to make this exercise most effective.
At the end of the week, sit down and study your expenditure journal. You will almost certainly see many things that are impulse purchases, money spent for things you didn’t need and perhaps didn’t really want, or money spent for things you could have obtained in different ways at lower cost.
Sit down and look at your list carefully. If you purchase coffee on the way to work at a trendy coffee shop that charges $4 for a cup of exotic java, and you do this every work day for 10 years, you can save $10,000 over the same period just by placing that money into your savings! That’s a lot of money to accumulate from simply making your own coffee at home instead of buying it on the road.
Look at other expenses that are unnecessary or can be provided for more economically. Do you eat lunch in a restaurant every day? If you do this, could you cut back to eating lunch out only two times each week and still be just as happy? Would once a week be sufficient to make you feel good?
The average lunch at a good restaurant, including a drink and a reasonable tip, costs at least $10. If you choose to cut back from five lunches out per week to one, and you consistently sock away the money you have saved, over the course of 10 years you will have gained more than $20,000 to put into savings.
Notice that two relatively minor changes in lifestyle over a period of 10 years can effectively add $30,000 to your personal savings! Think of the impact if this were carried out over the course of a 40-year career!
Look for money you spend that isn’t necessary, and place that money into savings instead of spending it on things that do not provide financial security. You’ll be truly amazed when you realize the amount and the places where your expendable cash is spent needlessly.
When setting your financial goals, you want to plan your expenditures and budget so that you do not feel deprived, but simply focus on cutting out the excess expenses that really do not mean much to you and your family.
If you take a family of four out to a nice restaurant for dinner every weekend, would you and the rest of the family members be just as happy if you only ate out at this type of restaurant once per month and saved the money from the other weekend outings? Perhaps you would be happy if you chose less expensive restaurants but continued to go out more often as a family outing.
Determine what is right for you and your family to feel happy and fulfilled while still saving money. Choose the level of comfort that will allow you to save without feeling that you’re not living a full and happy lifestyle today.
You’ll be amazed at how much you can save by cutting out only a few things that have become habit and do not add any real value to your life and that of your family.
Using the information you have gathered from studying your financial situation and focusing on your long-range goal, write down goals for the near term such as paying off credit cards within two years, saving money from unnecessary expenses equal to a specific amount each week, and others that apply to your situation.
When looking at the financial goals you are setting, do not think small. Instead, think big — really big! Do you wish to retire in comfort and leave a legacy to your children for their future? There is no reason you can’t aim high with your financial goals.
After all, it is far better to set your goals high and come near reaching them than to set your sights low and achieve the goals too easily. It is more meaningful to provide a challenge for yourself and your family.
Now that you have set some financial goals, keep in mind that you can alter or adjust them at any time to better suit your new needs as well as the changing economy. As your family grows or members reach maturity, your goals will certainly need to be reviewed and adjusted to reflect the changing situation.
If your career situation or that of your spouse changes, you should again adjust your family’s financial goals to reflect that. During periods of unemployment or short-term disability, you may have to change your financial road map for a period of time in order to adjust for the changes in income.
Whatever you do, dedicate yourself to changing the goals upward whenever possible rather than revising them downward, unless you must make a short-term change to accommodate periods of lowered income.
Do not allow yourself or your family to become victim of falling into the trap of spending part of your savings or liquidating some of your investments with the intention of putting it back later. It can be quite difficult to ever return your investments and savings to the level you had before. Keep savings and investments intact, if at all possible, so they can grow and allow you to reach your goal of personal financial success.
Original Article from http://wealthmagazine.com/