How to Set Financial Goals and How to Reach Them

Your number one financial goal in life should be, simply put, the achievement of financial wellness. We’ll discuss what we mean by financial wellness in a moment, but first, let’s say this: financial health does not mean being rich; it means being content.

When you are setting financial goals, you are not planning for a future where your bank account is overflowing, you are rather setting yourself up to meet future financial obligations with ease and confidence, to weather financial emergencies, and to have an overall healthy financial life. And really, that alone is a pretty huge goal. But it need not be a daunting one.

The secret to hitting that big financial – financial health, e.g. – goal is to establish multiple smaller goals and then make a plan and put in the work to hit them. And as you hit those goals, a sense of financial wellness will materialize.

What Is Financial Wellness?

To be clear, again, financial wellness does not mean achieving significant wealth – you can very much achieve financial wellness without amassing more money than you ever dreamt of or generating wealth such that your financial situation is one of riches. So, what do we mean by financial wellness? Think of achieving financial wellness as reaching a place in life free of financial stress and in which your financial situation is balanced and improving, even if only slowly and steadily.

Financial wellness is a state of existence in which you are able to meet your current financial responsibilities like paying bills, buying groceries, and even having some discretionary cash on hand, and in which you are accounting future financial obligations, like paying down a mortgage, sending the kids to school, and planning for retirement.

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If we want to trust the financial experts at the Consumer Financial Protection Bureau, then the four factors needed for financial wellness are:

1. Stable daily/monthly finances (expenses vs. income/savings, e.g.)

2. A financial cushion capable of absorbing a sudden expense

3. A financial situation allowing for freedom of choice

4. Progress toward a stable financial future

Makes sense, right? It’s really all about being comfortable now, financially speaking, even with some bumps in the road, and having a roadmap for financial comfort in the years ahead. And it’s about having enough money to have a bit of fun, too.

Why Is Financial Wellness Important?

If you enjoy enjoying your life, then financial wellness is important. Perhaps that sounds a bit flippant, but it’s entirely true. Without your proverbial financial house in order, you cannot truly enjoy your life, because one major aspect of your life is a constant threat to the well-being of its other areas. Without proper funds available, you lose control over so much of your life: you cannot be as selective with the hobbies you pursue, the foods you eat, the places you visit, the clothes and accessories you buy, and on it goes. 

And until you are in control of your finances, you cannot be as selective when it comes to major points in your life, either, such as where you live or the job you work. Financial wellness is critical to emotional wellness and really to overall wellness.

So, how do we get to a state of financial wellness so our mental and spiritual wellness can be supported?

Understanding financial literacy

Financial literacy does not ensure financial wellness, but without financial literacy, you’re unlikely to get there. Fortunately, financial literacy does not require a degree in accounting or years spent working at an investment bank or anything of the sort. Being financial literate just means you grasp the importance of saving, of planning for both short-term and long-term financial goals, you understand that avoiding or getting out of debt is imperative, and you know the value of proper budgeting. 

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Financial wellness improves with good financial literacy, and financial literacy improves with regular reviews of your money situation compared with your financial obligations. 

Achieving Financial Health Means Setting and Hitting Financial Goals

Don’t think of financial goals as having the wealth to buy a mansion or a sports car or spend three weeks a year vacationing in the Mediterranean or on Fiji. Those things would be nice and may well come in life, but they are aspirational rather than actionable financial goals, and fixating on distant financial goals like that can cause two issues: one, it may set you up for failure unnecessarily, which can damage your mental health and overall health as well based on stress and a lack of satisfaction. 

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And two, setting overly lofty financial goals that are hard to hit may mean you don’t see all the successes you are actually having. Because in reality, financial goals should not be the big house or fast car, but the establishment of emergency funds that can float you through rough patches, retirement planning that feathers the nest for a comfort later in life, and the creation of a budget that lets you manage your personal finances properly week to week, month to month, and year to year. Financial goals are not riches, in other words – though at some point wealth may come thanks to hard work and good planning – but are simply actionable metrics that can help you achieve financial freedom and establish good and lasting financial habits.

The Importance of Eliminating Debt

It’s easier said than done, of course, but you simply have to work toward getting out of debt if you’re ever going to achieve financial wellness. Whether it’s student loan debt, credit card payments, a hefty mortgage, or any other source of debt, while you owe more than you can pay, you cannot thrive financially, and let’s be honest: doing well financially is closely tied to doing well emotionally. 

When you can grow your finances, you can grow your sense of self-esteem and your happiness in life. It’s almost impossible to get into a positive growth mindset while you have that burden of debt on your back.

Yes, you do need to plan your budget

There are a slew of reasons people avoid planning out a budget for their lives. Maybe you think they are just too hard to create. Maybe you worry you’ll never stick to one. Or maybe you don’t want to know the hard truths about your finances that will come when you calculate your budget.

First, budgeting is not that hard: you don’t have to be precise to the penny to figure out about how much you spend each week on bills, gas, food, fun, and so on, and it’s not that hard to figure out how much you earn and what you have saved and invested. And guess what? You just made a budget.

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Second, you will likely find you are already living within your means; sticking to a budget might be easier than you expect, and if it’s not, the trouble was already brewing and now you can create new ways to keep yourself in line.

Third, it’s always better to know. If you have allowed in the thought that you don’t want to know your budget because it may be frightening or depressing, you are already being nibbled at by negative emotions; once you know, you may see they were needless, or you may see you were right, but then you can take action.

Does Achieving Financial Wellness Mean Not Thinking About Financial Wellness?

So in one way of thinking, you’ll know you have reached a true state of financial well being when thinking of your financial life doesn’t cause you even a bit of stress or worry, and may even elicit some contentment or even excitement.

Perhaps the best financial wellness definition is the state of being where financed aren’t even on your mind at all.

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