How to Set Financial Goals for the year

What does your financial future look like right now? How does one set financial goals for the year? Whilst I can not give you an exact answer for what your financial future might look like, but I can help you to set financial goals for the year in a few easy steps that I personally follow. The future is very uncertain, one day you could be making all the money in the world and the next you are not making anything. This is why it is so important to set financial goals right now instead of regretting in the future because you spent the money like tomorrow was not another day.

One of my favourite Dave Ramsay saying is, “live like no one else so that you can live like no one else“, essentially this means live below your means now so you can enjoy the fruits of your labour in the future and live retirement like no one else. For many people, it is unthinkable to ‘live below their means’ and would much rather put up appears and pretend like they are not drowning in debt just to please the Joneses. What they don’t know is that the Joneses are also living in debt and trying to show off what they actually do not have. This is why it is so important to set financial goals for the year in advance and work towards those goals.

Disclaimer: I am not a financial advisor, all opinions offered are my own and for educational purposes.

How to Set Financial Goals for the Year

When you look to the near future (3-6 months time), how do you think your finances will be looking like? Are you someone all saves every single spare penny they have or the opposite? I used to be the latter, I would spend every single penny I had once all my legal commitments like rent and debt were paid but rarely thought about saving. We live consumer focused lifestyles that we always chasing the next upgrade but not many people are chasing the next savings milestone.

Ever since I became a homeowner, I have had to change up some of my spending habits and improved my saving habits instead. These days, I love seeing my savings increase every single month and I make sure before I purchase something of value, I have saved up for it first. I have multiple sinking funds for multiple items and it helps seeing how each single day I can make a small deposit to my sinking funds whether its £1 or £100, it doesn’t really matter, what matters is that I am saving. In this post I will share a few tips on how you can set your financial goals for the year.

Use a Budget Tracker

Budget trackers are essential tools that you can utilise to take the temperate of your current financial status. I budget weekly and monthly using my own templates and track my expenditures daily and have a budget for each week. For some people this might seem like too much but I love it because I like knowing how much of my weekly budget I have used and how much I will be adding to my savings accounts. For bloggers, you can use my new business income and expense tracker that helps you track all your income sources and expenses as well as tells you how much to remove for tax (the spreadsheet as 20% as default).

Categorise your financial goals

One of the most important things you need to do before you start saving is writing down what it is you want to save for and then categorise the goals into three buckets: Short, Mid and long term goals. Your short term goals could be saving up for a birthday party or maybe your car’s MOT. Mid-term goals could be saving for your car insurance annual fee or saving for a 2-week vacation. Long term goal can be anything that will take a longer time to get the money together like buying a new car, buying a house and so on. I personally utilise these three buckets and my short term goal was to save up for my car’s MOT which I have done and the car is being looked over next week. For my mid-term goals, I am saving up for my holidays for this year, for digging up my garden and replacing some items in my home. As for my long term goals, I am saving up to pay off my car and be car debt-free and never finance a car again.

Set a target for each goal

Writing down a goal and plonking it into a bucket category is all well and good but these goals are not achievable if you don’t set a target date for them. You also need to be realistic when setting target dates for these goals because otherwise it will be deflating seeing yourself not achieve your goals because your heard was in the clouds. For example, my short term goal was to save for the MOT, my MOT is due between Mar and May, so I started putting some money aside last December and it was small change for now I have enough money for my MOT. Whatever money will be left over that will be rolled into my mid-term goal aka saving for my car insurance because I am switching from monthly payments to annual payments. To pay off my current car, I need 30 more months but currently I only have 8 months, so I am saving and paying a little extra towards my car.

Know how much you can contribute to each goal

When it comes to saving for each financial goal, you need to know what you already have and how much you can contribute to each goal. I know every single month how much I have let over once my bills and savings are paid, I then remove my fun money and calculate the remainder and allocate that according to the priority of the goal. For example, my MOT checks is much earlier than my car insurance, it therefore makes more sense for me to allocate more money to MOT sinking fund than the car insurance sinking fund. But it is important to ensure you are adding to each pot a little every single week, month or whatever your frequency of saving.

In conclusion, it is important for you to save for the rainy day, take your financial temperature and perform a stress-test on your financials and ask – if we went from one source of income, can we survive? If we lost our sources of income, how long would we last before we completely on the streets? Setting financial goals is so important because it allows you time to save both for the expected and the unexpected too.