If you want to take control of your finances both in the short and long-term, then setting smart financial goals is a must.
In this post, we’ll look at 7 smart goals to start with.
What are financial goals?
Financial goals are money-related targets and objectives that you set out to achieve. They lay out how you want to make, save, invest, and spend your money.
A financial goal can be as simple as a short-term goal of saving for a vacation, to longer-term goals of buying a house and retiring with a big enough investment portfolio.
Whatever your goals, it helps if they are clearly defined with plans on how to achieve them. And of course, a realistic timeline.
A financial goal without a plan is simply a dream.
Smart financial goals everyone must have
Here are 7 financial goals that everyone should have
1. Increase Your Income
Imagine what an extra $1,000, $2,000 or more per month can do to your finances.
It’s easier to focus on your spending, but expenses are just one variable in the financial equation.
How much you bring in is equally important, and some may even argue that it is more important.
If you want to save more, you can either cut down your spending or earn more. Better still, do the two!
If you’re an employee, when was the last time you got a raise? Is your salary comparable with people that have similar experience and skills in your industry? Can you ask for a raise in your current job? How about getting a better paying job?
If you’re self-employed, do an income audit. Who are your best clients? How can you serve them better and provide complimentary services? Does your rate reflect the value you’re providing or you’re simply selling your time?
More importantly, invest your time and money in diversifying your income. Get a side gig by using your existing skills. Learn new skills and start making money from them.
If you’re passionate about a topic, you can start a blog and monetize it. You can get web hosting and a free domain name for less than $5 per month. Or turn your knowledge into courses, webinars and training using a service like Podia.
In short, you need to be intentional about making extra income. Relying on a single source of income is not just leaving money on the table, it can be downright dangerous on your finances.
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2. Track Your Expenses And Create A Budget
If you’re struggling with getting your spending under control or living paycheck to paycheck, creating a budget is a good starting point to get your finances in check.
But be realistic with your budget. Slashing your housing cost by 50% if you’re planning to get a roommate may makes sense. If you’re not ready to change your behaviour, simply allocating a percentage to each spending category is wishful thinking and you may be setting yourself up for disappointment.
Also, let your budget reflect your financial goals. Saving for a car down payment? Reallocate some of your entertainment spending to the goal.
While a budget helps you plan, tracking your expenses helps you identify and reduce wasteful spending. When done regularly, it can curb impulsive spending, give you better insight into where your money is going and help you gain control of your finances.
Remember that every dollar not spent is a dollar that can be saved towards your financial goals and invested. You can make budgeting and tracking your expenses easier by using an app, for example, Mint or YNAB.
Many apps will automatically pull your transactions from your bank and provide an overview of your spending in the current month and over time.
Read More: Best Budgeting Apps
3. Build an Emergency Fund
Sometimes Life throws some financial surprises our way. It could be a job loss, unexpected home or car repair, medical or dental emergencies and so on.
When it happens, an emergency fund will ensure you’re in a better position, financially, to respond with minimal stress without the need to take on extra debts.
If you have a single source of income, self-employed or a contractor with irregular income, or living with a medical condition, then it’s important to prioritize building an emergency fund.
To get started:
- Estimate how much you need to set aside by calculating your monthly expenses on essential items like housing, transport, food and so on.
- Decide on where you want to keep the funds. The funds must be easily accessible and relatively safe from market volatility. A High Interest Savings Account is a good place to start.
- Set up direct deposits to automate your contributions to the account. This helps take emotions out of your decision to save.
Related Post: Emergency Fund: The Benefits And Tips To Build One Fast
4. Get Your Debt Under Control
Are you carrying huge credit card balances, student loan, car loan and other debts that are preventing you from saving for other financial goals?
Set a goal for when you want to get out of debt and how much you need to throw at it every month.
Start by convincing yourself that paying the minimum balance monthly will not cut it. Get an extra job, learn a new skill that will earn you more money, cut your spending on wants and non-essential items, then throw all the extra money at your debts.
Come up with a debt repayment plan using either the debt avalanche or debt snowball methods.
With the debt avalanche method, you put all the extra money on the debt with the higher interest rate. Once it’s full repaid, you’ll move on to the next debt with the highest interest. You will pay less interest over time with this method.
On the other hand, any extra money goes to the debt with the smallest balance if you’re using the debt snowball method – irrespective of the interest rate. It helps you quickly build momentum and see some progress with your debt repayment.
When your debt is under control, you’ll be in a better position to achieve your saving goals, take charge of your finances and live a more fulfilled life.
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5. Save and Invest For Retirement
The earlier you start investing, the more time your money will have to grow and compound.
For example, you’ll only need to save $319 every month to retire a millionaire at 67 if you started saving when you were 20 years old. Assuming a 6% annual return.
The monthly amount jumps to $1,240 and $2,831 if you waited till you’re 40 and 50 respectively before you start investing.
That is the power of compounding!
Unfortunately, a million dollars in retirement may not even be enough once you consider inflation.
So it’s very important to prioritize this financial goal.
Set up direct deposits to your investment account. Start small and increase your contribution over time. As you pay down your debts and free up more cash, divert them towards your retirement savings.
Invest regularly, irrespective of what the market is doing, and don’t give in to the temptation to time the market.
Also, pay attention to your investment costs. They matter. Open an account with an online brokerage like Questrade or go with a robo-advisor. Many of them allow you to buy ETFs commission-free.
If your company offers employer’s match, make sure you are saving enough to maximize the benefit. It’s an instant 100 percent return on your savings.
And if you’re already saving and investing, reassess how much you’re saving: both as a percentage of your income and in absolute term.
Saving 10% of your income is good, but can you increase it by cutting back in some other areas or making extra money?
Finally, max out your tax-advantage investment accounts first. In Canada, this means putting your money in a TFSA or RRSP first, before investing in a non-registered account.
6. Improve Your Credit Score (and maintain it)
From the perspective of a lender, a credit score says a lot about you. It is an indicator of how well you have managed debts in the past, and the likelihood that you will repay the new loan in the future.
So why should improving you credit score be one of your financial goals?
The higher your score, the easier it is for you to get
- approved for new credits
- more favourable rates. By getting a good interest rate on your credits, you can potentially save hundreds or thousands of dollars over the life of the loan.
To get started, you need to understand the factors that contribute to your credit score and their weights.
Then move on to learn the simple tips to improve your scores, both fast and gradually over time.
Related Post: 7 Surefire Ways to Improve your Credit Score fast!
And if you already have excellent credit scores, make sure you continue to maintain it. A single late payment can drop your scores by more than 100 points.
This is unsurprising since Payment History weighs 35 percent in credit score calculation.
Finally, check and monitor your credit scores and credit reports regularly.
Related Post: How to get your credit score and credit report for Free in Canada
7. Plan For Your Estate And Protect Your family
It is important to plan for what happens after you die.
This starts with creating a Will and getting an adequate Life Insurance.
A Will ensures that your assets are distributed according your wish, and not based on the government laws or rules of where you lived.
And with the online Will writing services available these days, getting a Will has never been easier. You can start now and have a completed Will that’s ready to be signed in the next 20 minutes.
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You should consider getting a Life Insurance policy if your death will have an adverse financial impact on your loved ones.
For example, will your spouse be able to cope with all the family expenses and still make the monthly mortgage payments if you were to die prematurely?
Should you get life insurance?
Of course, you may not need a Life Insurance coverage if you have substantial savings and investments that you family can live on when you are gone.
However, if you have a young family, a relatively small nest egg or huge debts, then your family will appreciate the lump-sum cash benefit they’ll get if you die.
How much life insurance do I need?
Start by calculating how much insurance coverage you need. There are several calculators you can use online. The best ones will ask questions about your current expenses, debt obligations, future plans such as children’s educations and so on.
You can use the PolicyAdvisor.com tool here. Click on the Get Instant Quote link. You’ll be prompted to calculate your personalized coverage amount. Once you’re done, you’ll be presented with quotes from several Insurance providers.
PolicyAdvisor.com is an online Insurance broker in Canada. It is a convenient way for getting the coverage you need.
Alternatively, use the life insurance calculator over at PolicyMe, an online life insurance provider with the most affordable rates in Canada.
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Living a financially free life or reaching financial independence will not happen overnight, by accident or by wishful thinking.
It starts by setting SMART financial goals, being committed to follow through and continuously tracking your progress.
Stop dreaming and start doing!
You may not achieve all your financial goals within your set timelines. That’s fine. But you’ll be developing healthy money habits and taking control of your finances in the process.
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