In 2021, setting financial goals is more important than ever after the tsunami known as 2020.
2020 threw everyone’s life out of sync but the one lesson I think most people have learned is the importance of saving and back up funds.
Setting financial goals is an activity I engage in twice a year.
I set short-term financial goals and long-term financial goals at the beginning of the year.
And then midyear, I go back to see if there’s any goal I need to reset or adjust.
Any major expense or investment you desire for your life starts with setting a financial goal.
By setting financial goals, you’ll be able to use your own money instead of piling on more debt.
Recap of My Financial Goals in 2020
In 2020, I had specific financial goals, which included replenishing my accounts.
A lot of my funds were depleted when I moved countries midway through 2019.
Despite keeping a tight rein on the budget, there’s no such thing as a cheap move from country to country.
- Top Accounts Back to Pre-move Status: I was able to replenish my emergency funds, my back up emergency funds, and my savings accounts.
- Max Out Retirement Accounts: In Canada, we have two types of accounts for retirement – TFSA and RRSP. There’s a limit to how much you can save in these accounts every year. I was able to max both in 2020.
- Investments: I started learning how to invest in 2015 after I lost a significant amount of money leaving this to someone else. Since 2016, I’ve been managing my investments. I had to relearn a few things and started investing via Questrade.
- Donate to Charity: My favorite places to donate to are charities that take care of children as well as sick children. In 2019, I wasn’t able to donate so much. However, I was so blessed towards the latter part of 2020, I was able to donate as much as I wanted.
That’s the bulk of it and because we spent most of 2020 in lockdown, there wasn’t any way to spend money beyond groceries and the occasional take-out.
So all the money I made was mostly saved. I also achieved some other smaller milestones but I won’t yap about that in this article.
2021 Financial Goals
My 2021 financial goals are pretty much the same as 2020 with an additional vacation fund added.
I don’t know when we’re going to be able to travel again but it’d be nice to have the money ready when I can.
I also hope to buy a car and save enough money to make a sizable downpayment on an apartment.
I’m self-employed with irregular income so I don’t feel comfortable taking on a huge debt at all even if it’s “good debt”.
9 Benefits of Setting Financial Goals
1. Setting Financial Goals is Efficient Money Management
You’re able to manage your money properly and meet your financial targets when you set financial goals.
It will also help you to pay down debt faster and be prepared for tax season every year.
2. Setting Financial Goals Ensures Increased Cash Flow and Liquidity
When you set financial goals, you can monitor your spending and expenses, which will help you retain more of your money.
4. Investment Opportunities
When you set and achieve financial goals, you have more money to spend on investments which will increase your equity.
Proper investments are an excellent way to improve your financial standpoint and be better prepared for retirement.
5. Setting Financial Goals Means Accountability
By setting financial goals and having them in your subconscious, you will be able to hold yourself accountable for meeting those goals.
This is a very powerful tool. Write it down, print it out, and put it somewhere you can see it every day.
You’re more likely to keep yourself on track if you visualize your financial goals.
6. Knowing How Much Money You Need
If you don’t set financial goals, how will you know how much money you need to save for something and how you will save for it?
Without financial goals, you’re just winging it as you go, which is a terrible idea and a good way to remain in debt.
7. Setting Financial Goals will Help You Achieve Financial Independence Faster
One of the best benefits of setting financial goals is you will achieve financial independence faster.
Financial independence means debt-free and not quivering in your boots when a major expense shows up because you already got it covered.
8. Setting Financial Goals Provide a Sense of Purpose
Setting financial goals gives you a sense of purpose; a reason why you bother getting out of bed every morning.
Achieving the milestones you’ve set in your financial goals will give you a reason to celebrate special moments along the journey called life.
9. Have You Been Thinking of Starting a Business?
Starting a business means leaving the comfort of a secure 9 – 5 paycheck for irregular income.
You will not be able to do this if you’re not financially independent. Setting financial goals will help you get to this point faster.
You will be able to launch your business and focus on making it succeed when you’re not saddled with the burden of financial insecurity.
How Do You Set Personal Financial Goals?
There are two types of financial goals you should set – short-term financial goals and long-term financial goals.
Short-term Financial Goals
Short-term financial goals are goals that you achieve within a short period.
Short-term financial goals are usually immediate or near future expenses.
Achieving short-term financial goals will keep you motivated to stay the course for long-term financial goals.
What is an Example of a Short-term Financial Goal?
Examples of good short-term financial goals to set for yourself include:-
- Create and maintain a budget
- Set up an emergency fund
- Pay down credit card debt substantially
- Pay down student loans or other debt
- Pay off a car note
- Acquire suitable life/home/health insurance
- Save for a vacation
- Save down payment for a house
- A life event such as a wedding or graduation
- Home improvements
- Live a healthier life and become fitter
Short-term goals last anything from a month to 1 year.
After the pounding 2020 delivered to most of us, goals 1 and 2 above are more important than ever.
Long-term Financial Goals
Long-term financial goals are more big picture and way into the future. They cost a lot more money to achieve.
What is an Example of a Long-term Financial Goal?
Examples of good long-term financial goals to set for yourself include:-
- Save for retirement
- Start investing for retirement
- Pay off the mortgage
- Buy a house
- Become self-employed
- Save for college tuition
- Financial independence
Long-term financial goals take anything from 5 to over 15 years to achieve.
If you didn’t have the short-term financial goals to keep you going, long-term financial goals look like they’re impossible.
Short-term goals can take longer than long-term financial goals and long-term financial goals can take a much shorter time than anticipated.
When you plan your financial goals, you will have a mix of short-term and long-term financial goals.
SMART Financial Goals
Whatever financial goals you set, short-term or long-term, they must always be set using the SMART principle.
When you set financial goals using the SMART principle, you will have a better chance of succeeding.
Free SMART Financial Goals Worksheet
The Easy Guide to Money Management includes a comprehensive SMART financial goals worksheet. You can download it for free HERE.
For a more detailed worksheet on setting general yearly goals including financial goals, download the 2021 Goal Setting Worksheet.
Recommended Personal Finance Reading to Support Your Financial Goals
Below are my top 4 books for learning how to manage finances and develop a savings habit that will serve you tremendously on your path to financial independence:-
- The Simple Path to Wealth: Your Road Map To Financial Independence and a Rich, Free Life
- Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence
- The Richest Man in Babylon
- The Bogleheads’ Guide to Investing
Happy New Year!