The Basics of Setting Financial Goals

Managing money is something important that most schools don't teach, for some reason. Setting financial goals is an important basic step to managing money that can help you envision the future path of your financial situation. Understanding your current financial situation compared with the financial path you wish to take can help you plan where your money goes and achieve your financial goals more quickly.

Know your Financial Reality

Setting financial goals is different for every situation. Unfortunately, there is no magic money guide to a budget that will make you rich and famous. Consider your family's means, needs, wants, and desires and make a personalized financial plan for your family that works for your situation. A number of financial planning books and guides offer information on setting financial goals that can help you cater your goals to your own personal finance.

Find your Net Worth

The first thing you need to do when setting financial goals is figure out what your current situation is. Find out how much you are worth. Net worth is the final balance that comes out of adding up what you have, your assets, and subtracting what you owe, your liabilities. Your net worth is the total worth of your property if you liquidated everything you owe and paid all of your debts. Determining your financial worth can be a painful process, but it is a process of being honest with yourself about where you are compared with where you would like to be. Do this sooner rather than later; the earlier you find out what kind of a mess you are in, the easier it will be to fix.

Determine Expenses

Expenses includes spending like your car payment, rent, school tuition, or anything else that you have to pay on a regular basis. This will include a daily stop at Starbucks for coffee, lunch at Panera, or any other expenditure that makes a significant dent in your weekly budget. Figure out what you really need and cut what you don't. You should be able to use this information to determine how much you can save for your dreams every month.

Budget for your Dreams

Financial planning goals are easier to achieve if there is a proverbial carrot on the end of the goal-setting stick. Decide your dreams are as important as any other part of your budget, and you will reach those budgeting goals faster. If you make your dreams a priority, you can achieve your wildest financial planning goals.

Tips for Cutting Expenses

Cutting expenses can sometimes require little or no sacrifice if you find cheaper ways to get the things you like to have. If you use something all the time, find out if you can buy it in bulk or make it. Check bulk stores like Costco or Sam's Club for bulk discounts on food, cosmetics, bathing supplies, and anything else your family goes through fast on a regular basis.

If you have a gym membership listed under fixed expenses, consider getting rid of it and getting a jogging buddy in your local neighborhood. If you prefer to exercise indoors, try getting a matching set of stationary bikes or elliptical machines for your family. They can often be very cheap used at thrift stores or in local classifieds. If you buy coffee at Starbucks' every day, write down how much that costs you per month and determine whether you might save money brewing your coffee.

Setting financial goals can be a painful process, but it is necessary on the road to eliminating debt and getting the things you really want in life, no matter what your dreams are.

References:

Kiplinger's Practical Guide to Your Money, 3rd Ed.; 2005
Idaho Personal Finance: Tracking Expenses
Idaho Personal Finance: Setting Financial Goals