4 of the Most Important Steps to Create Realistic Personal Finance Goals

4 of the Most Important Steps to Create Realistic Personal Finance Goals

One of the problems that people often encounter on their paths toward greater financial freedom is the inability to set achievable goals. When people focus on the wrong things or set goals that are too lofty, they may become discouraged and give up on their goals altogether.

Individuals need to approach their finances realistically and create a roadmap that gets them closer to their ultimate goals. For the vast majority of people, this will involve meeting some intermediary checkpoints along the way. These affirm that people are taking the right approach and making real progress.

Achieving these short-term goals makes individuals feel more empowered and steels them to work even more diligently toward their long-term objectives. Some tips to keep in mind when it comes to setting realistic goals include:

1. Take stock of the current situation.

Setting goals is overwhelming. Having more information makes it more feasible to set realistic expectations. Before setting any goals, it is critical for individuals to have a comprehensive perspective of their current financial health.

First, people should calculate their net worth by adding up their assets, such as savings, investments, and income. Then, they should subtract their debts, such as credit card balances, mortgages, and car loans. Some apps help people track these important numbers and get a real-time glimpse of their financial health.


Taking stock of the current situation also involves addressing potential shortcomings that must be considered before allocating any savings toward goals. For example, individuals should have a budget. That way, they know clearly how much they can save from month to month and identify potential places to reduce spending.

Also, everyone should have an emergency fund as a safety net for when the unexpected happens. In addition, individuals may want to focus on clearing their debt before embracing savings goals, especially if they have high-interest accounts like credit cards.

2. Understand the “why” behind goal-setting.

Once people have a comprehensive understanding of their current financial situations, they may have a better idea of what they need to do first. That may mean saving up an emergency fund or getting rid of credit card debt. However, getting motivated to meet these goals largely involves understanding why the goals are so important.

For example, having an emergency fund means that the mortgage or rent will continue to get paid even if someone loses employment. Keeping this in mind will motivate people to reach this goal. In the event that individuals have a lot of credit card debt, they should understand that paying it off means they can divert money paid on interest to something else, such as a vacation.

3. Make goals that are SMART.

The SMART framework should always be used to help set achievable goals. The acronym stands for specific, measurable, achievable, realistic, and timely. These are the attributes that make a goal worthwhile.

Importantly, this step cannot be completed until a budget has been created and people know how much they will be able to save in the coming months. Each goal needs to have a very specific purpose.

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Examples include paying for a wedding or getting a credit card paid down to zero. There should also be a clear way to track progress, such as establishing a savings account made specifically for the goal or credit card statements.

Having a budget allows individuals to estimate the time that it will take to reach the goal. Sometimes, saving enough for the desired wedding in a year is not feasible, but it could be possible in 18 months. Knowing this upfront helps with overall planning.

Creating goals according to the SMART paradigm can also help individuals identify strategies for helping to achieve them. For example, individuals may choose to utilize automated savings or balance transfers to a low-interest account.

4. Create some form of accountability.

Ultimately, individuals need to hold themselves responsible for achieving their financial goals. However, it is a good idea to create some form of accountability. At the very least, individuals should write down their goals, and identify a strategic plan for reaching them.

Ideally, individuals can discuss their goals with friends or family who can check in with them and help measure progress. This system helps because it can keep people on the right track, even when they feel like they are not making progress. Sometimes, it makes sense to discuss goals with professionals, especially when it comes to saving for retirement or making investments.

Accountability involves checking in with goals along the way. For long-term goals, it makes sense to set benchmarks or break them up into short-term objectives. Then, individuals have a sense of accomplishment once they reach those short-term goals.

Celebrating achievement is important for maintaining morale during the process of achieving goals. Checking in on goals is also important because it gives people a chance to reconsider their goals and make changes when necessary. Goals can change, as can personal situations, so it is important to reassess periodically.