So you have been drifting for a while in that vast financial ocean, spending a little here, saving a little there, but not really getting very far.
But recently things have changed. A little voice in your head is prompting you to move beyond your financial meanderings and begin achieving your ambitions and dreams – it looks like now is the time to start thinking about financial goals!
But What Are Financial Goals?
Financial goals are very closely aligned to our dreams & ambitions in life. The difference is that they enable us to achieve our ambitions and the more challenging the financial goal, the more ambitions we can achieve.
It is very easy to sit and daydream about owning a big house by the river or a plush, new apartment close to the city centre, but quite another thing to actually sit down and work out how you are going to buy that riverside home or swanky pad.
Some financial goals are focused on the longer-term, such as being able to retire early, whilst others are much more short-term, like paying for a round-the-world trip due to take place next year.
Amongst the many ambitions that people have, there are some that more common than others, these include:
- Buying a house
- Starting a family
- Retiring early
With all of these ambitions, the bottom line question that people should be asking themselves is – How much will it cost to achieve them?
Sizing Up A Dream
Let’s take buying a house as an example. That dream riverside home doesn’t come cheap, so let’s opt for the swanky pad instead.
At £300,000 it is still expensive and the bank will require a 20% deposit before they even consider giving you a decent mortgage rate.
To achieve the dream of owning a posh pad, you will need:
- A deposit of £60,000
- A monthly, post-tax income of £3,000 (to afford the £1,500 mortgage and other expenses)
This provides two financial goals:
- Save a deposit of £60,000
- Increase my salary to give a post-tax monthly income of £3,000
Working Out Your Current Position
To know where you are going, you first need to know where you are. Anyone who has ever been lost in a strange city and struggled to find their way around using an A-Z map will know what I mean.
Unless you can pinpoint your position on a map, you cannot work out the best route to get to your destination and the same applies in financial terms.
So unless you know how much you earn, how much you spend, how much you have saved and how much you owe in debt, you will really struggle to work out how and when you will achieve the goal of saving £60,000.
What you need here is the financial equivalent of GPS and it is called a budget. You can download my free budget template and use it to work out:
- How much you earn each month (after tax)
- How much you spend a month
- How much you owe in loans, credit cards and store cards
- How much you own in savings and investments
This gives you your starting point.
Determining Your Route
The route you must take to meet your deposit goals is to begin saving. Similar to journeys on a map, there are quicker & shorter routes, you just need to find the one that best meets your circumstances.
Assuming you are able to save £1,000 each month, you will know that you will reach your goal within 5 years.
That may sound like a lifetime when you are itching to own your own place, so maybe with a few sacrifices (giving up shopping and finding a weekend job) you can pull together a further £500, giving you monthly savings of £1,500.
This enables you to meet your goal in just over 3 and a bit years – which is much more encouraging!
This particular financial goal is a savings goal and you can get more details in this post – Savings Goals – How To Ensure You Get Want You Want!
Other types of financial goals include – increasing your income or getting out of debt, and they too will have their own specific routes for getting from your current situation to achieving your dreams.