Developing Personal Financial Goals
In most of the richest countries in the world, it is difficult to understand why so many people have money problems. The answer seems to be the result of two main factors. The first is poor planning and weak money management habits in areas such as spending and the use of credit. The other is extensive advertising. selling efforts, and product availability. Achieving personal financial satisfaction starts with clear financial goals.
Types of Financial Goals
Two factors commonly influence your financial aspirations for the future. The first is the time frame in which you would like to achieve your goals. The second is the type of financial need that drives your goals.
Timing of Goals
What would you like to do tomorrow? Believe it or not, that question involves goal setting. Short-term goals are goals to be achieved within the next year or so, such as saving for a vacation or paying off small debts. Intermediate goals have a time frame of two to five years. Long-term goals involve financial plans that are more than five years off. such as retirement savings, money for children's college educations, or the purchase of a vacation home.
Long-term goals should be planned in coordination with short-term and intermediate ones. Setting and achieving short-term goals is commonly the basis for moving toward success of long-term goals. For example, saving for a down payment to buy a house is a shon-term goal that can be a foundation for a long-term goal: owning your own home.
Goal frequency is another ingredient in the financial planning process. Some goals, such as vacations or money for gifts, may be set annually. Other goals, such as a college education, a car, or a house, occur less frequently.
Goals for- Different Financial Needs
A goal of obtaining increased career training is different than a goal of saving money to pay a semiannual auto insurance premium. Consumable-product goals usually occur on a periodic basis and involve items that are used up relatively quickly. such as food. clothing. and entertainment. Such purchases. if made unwisely. can have a negative effect on your financial situation.
Durable-product goals usually involve infrequently purchased. expensive items such as appliances. cars. and sporting equipment: these consist of tangible items. In contrast. many people overlook intangible-purchase goals. These goals may relate to personal relationships. health. education. and leisure. Goal setting for these life circumstances is also necessary for your overall well-being.
Goal-Setting Guidelines
An old saying goes. "If you don't know where you're going. you might end up somewhere else and not even know it. Goal setting is central to financial decision making. Your financial goals are the basis for planning. implementing. and measuring the progress of your spending. saving. and investing activities.
