Before you can solve any of your financial problems, you need to clearly understand your financial goals. Without goals, it will be hard to measure your progress or move in the right direction towards financial stability and freedom. So here are a few steps towards creating a clear picture for your personal financial journey.
Here are a few steps in setting your Financial Goal:
1. Dig deep and understand what are your financial priorities and goals are in life.
Are you looking to buy a house? save for university? or retirement? We all have our own unique priorities in
life; therefore, it is important to understand them so we can plan to achieve them.
Many of these priorities take money to achieve and as a result take time.
2. Create a timeline for where you want to go.
Nothing happens overnight and neither does becoming financially stable. By creating a timeline you are able to better understand the amount you need to save on a weekly, monthly, yearly basis as a result making it easier to create a budget. If you are saving for a house and have an idea of the down payment and monthly interest payments it becomes easy to put this into your budget. Once your priorities and goals are defined you can divide your financial goals into short, medium, and long-term.
Short-term: Financial goals that take less than one year to achieve.
Medium-term: Financial goals that should take more than a year but less than 5-years to achieve.
Long-term: Financial goals that may take over 5 years to achieve and usually require much more money.
The timeline basically allows you to estimate the amount of money needed and how long it will take you to reach them.
3. Create a budget.
Creating a budget allows you to have a clear picture of where your income (salary) is being spent. Without a budget, you are not able to understand where your money is going and in some cases spend more than your income. With your budget created work towards understanding where you can decrease expenses and start saving for the goals, you listed in part 1.
In becoming financially stable the first step is to make sure that your expenses are below that of your income or else you will always be in debt.
4. Save
Saving is the key and with a clear budget, you will find ways to save money by making sure some of your income is left after all your expenses. It doesn't matter how much you save - it is the first step to becoming financially stable and staying away from unnecessary debt.
One important rule that financially stable people follow is keeping an emergency fund. An emergency fund is basically savings that can cover expenses for 3 to 6 months (the longer the better). During times of uncertainty, emergency funds can be the difference between being homeless or stable.
5. Keep Track of where you are!
Always check where you are in the process of achieving your goals. Every time your salary is paid take a few minutes to see how closely you followed your budget and make the necessary adjustments to increase your savings and decrease unnecessary expenses.
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