Without goals, it is hard to save money or stay financially healthy. By setting reasonable goals and tracking your progress, you can develop strong financial habits and give yourself the freedom to dream about what you can accomplish with the resources you have.
Financial goals can be divided into two categories: long-term and short-term. Long-term goals can take decades to reach, and they can include many steps. In this article, we’ll focus on short-term goals, which can be accomplished in anywhere from a few months to a couple of years. Ideally, your short-term goals will contribute to a larger long-term goal, like achieving financial security.
Short-term financial goals could include things like:
- Going on vacation
- Accomplishing a home improvement project
- Saving for a wedding
- Creating an emergency fund
- Paying off credit card debt
- Preparing for a baby
- Starting an IRA
- Moving into your own place
- Buying a new car
A financial goal does not have to be limited to things you save money for either. It includes concrete steps you want to take to put yourself in a better position financially (like lowering your cost of living or increasing your income).
Here are eight tips to help you set strong short-term financial goals.
1. Think about your long-term goals
Good short-term financial goals build on each other, and they should contribute toward your long-term goals. Even if you have not formally defined your long-term goals, you probably have some vision of what you would like your financial future to be like.
Do you want to own your own home? Get a rental property? Pay off your student debt?
Many people say they want to retire by their midsixties at the latest. When they say that, they often mean they would like to live comfortably in their old age. That does not simply happen on a whim. Social security is rarely enough for people to enjoy the kind of retirement they want. A comfortable retirement takes years of financial planning, and it encompasses numerous short-term goals.
For example, if being able to retire is a long-term goal, you might create some short-term goals like:
- Opening an IRA
- Maxing out your 401K contributions
- Saving for a down payment on a house
- Paying off individual debts
Once you’ve identified your big, long-term goals, think about what steps you’d need to take to get there, and create short-term goals to accomplish those steps.
2. Build a list of your biggest needs and wants
Chances are, you already have some short-term goals in mind, whether they are things you urgently need or simply want. Give yourself time to brainstorm and dream about all the potential goals you’ll want to consider.
Do you have debt you need to get rid of? Is there a home improvement project that would increase your equity or quality of life? Is there a vacation you have been dreaming of? A wedding in your future? Do you need a different vehicle?
By taking inventory of potential short-term goals, you’ll be able to evaluate and prioritize the ones that are most important to you.
3. Prioritize your goals
Once you have your list, try to group your short-term goals into categories. You might create categories for goals that improve your quality of life, goals that increase your financial security, or goals you won’t pursue yet. Ask yourself:
- Which short-term goals connect to my long-term plans?
- How long will the benefits of each goal last?
- What happens if I never reach this goal?
- Which goals are hardest to achieve in terms of time, money, and sacrifice?
By evaluating and ranking your goals, you’ll begin to create financial priorities.
4. Consider how an emergency would affect your life
Forty percent of Americans say they do not have enough savings to cover a $1,000 emergency, and 37 percent say they do not even have enough to cover an unexpected expense over $400. That is why one of the first short-term goals on most people’s lists is to create an emergency fund.
Unexpected expenses are inevitable. Things break. Medical problems can come out of nowhere. Companies have layoffs. And disasters—both big and small—happen all the time. Without a financial cushion, even a small setback can kill your momentum and derail your financial goals.
If you do not already have an emergency fund, that should be a high-priority goal. Most financial advisers recommend saving three to six months’ worth of basic living expenses in case you lose your job. But that takes time, and it can sound daunting if you have been struggling to save money.
The reality is there is no magic number you have to save. The point is to provide a safety net for when something bad happens. Even if your safety net is smaller at first, it is much better than nothing. Start by saving $1,000 to give yourself a cushion against a wide range of unexpected expenses.
5. Create a budget that accounts for your goals
To accomplish your financial goals, you must have a thorough understanding of your current financial situation, and that starts with creating a budget. Without a budget, you are coasting financially. You may have some vague expectation of where your money should be going, but you cannot tell how much you are spending in a given area. Start by evaluating your current income and expenses, and when you have the full picture—income, expenses, and goals—you can build a realistic plan.
Even if your goals are important to you, it will be nearly impossible to achieve them if they are not built into your budget. Creating a budget forces you to wrestle with your financial priorities and decide how your goals actually stack up. This is a crucial tool to help you hold yourself accountable and make sure you’re spending money where it matters most to you.
6. Create a timeline
Many short-term goals can take months or years. If you do not already have external pressure to finish your goal by a set date (such as a baby’s due date), it would be wise to give yourself a deadline. Without a target date, there is no way to know if you are ahead of schedule, on track, or off track.
Even if your timeline is arbitrary, creating one pushes you to compensate for times where you neglect your goal or experience a financial setback, and it encourages you to track your progress toward your goal every month.
When you have a timeline for when you would like to reach your goal, budgeting for your goal is simple: divide the cost of your goal by the number of months you have to reach it.
If the numbers don’t add up at this step, there are three ways you can make adjustments to make it work:
- Lower your expenses
- Increase your income
- Extend your timeline
You may identify areas where you can cut back your spending, or you may come up with ideas to generate a little more income. If neither of those paths are an option for you, the easiest thing to do is extend your timeline. A longer timeline can increase the risk that you will encounter setbacks, but it’s better to have a longer timeline that you’re committed to than a shorter timeline that is impossible to achieve.
7. Create a plan to track your progress
Once you have your goals, a timeline to reach them, and a budget that accounts for them, you need a way to see how you are doing.
Some goals can be broken down into steps or mini-goals. Maybe there are purchases you need to make in order to be ready for a big project. Or maybe you have a series of smaller debts you want to pay off. Instead of treating your short-term goal as one single unit, break it down into pieces you can slowly check off. Turning your goals into smaller, bite-sized steps will help you see that you are making tangible progress, not just shuffling money into an account.
Some people enjoy using spreadsheets to track their money goals, and others find that budgeting apps work well for them. There are numerous free and premium money management apps that are designed to help you track your finances. If you are comfortable hooking up a reputable app to your bank account and credit card, it automatically records and categorizes every purchase, and you can manually categorize transactions as well.
By creating a dedicated fund, account, or budget line for your goal, you’ll be able to track your progress from month to month. You’ll also have the added benefit of not accidentally mixing up the money you’re saving toward your goal with your other savings.
8. Address things that have held you back in the past
There are lots of reasons why people never achieve (or even set) financial goals. Maybe you have been waiting for something—like a promotion—to make you feel like you were ready. Maybe your partner has not been on board with your goals in the past. Maybe you’ve been waiting to set goals until your student debt is gone. Maybe you feel like setting goals is too restrictive or thinking about money is too stressful.
Identify what beliefs or obstacles have been holding you back. The harder your goal is to reach, the easier it is to make excuses, and the less friction it takes for an obstacle to become a major setback. So get ahead of your excuses.
Get aligned with your partner and create goals you can share and work toward together. Set a short-term goal to make your student debt more manageable, include it in your list of potential goals, and see how it stacks up against your other priorities. Talk with a trusted friend or financial adviser about your fears.
You will always have reasons not to put money toward your financial goals. With these steps, you can overcome those reasons and build healthy habits to accomplish your financial goals.
