As human beings, we need goals to motivate and drive us forward. We set targets for our careers, for our relationships, and we even set goals for our weight and fitness. Why is it that we often forget to set goals for our finances?
With only 20% of South Africans contributing towards a formal savings fund, the poor savings culture in the country could look radically different if adults placed the same value on their financial success as they do on their personal advancement. Setting financial goals is the first step in reaching this.
What are financial goals?
- Financial goals are the short-, medium- and long-term objectives you indicate and categorise as the reasoning behind your saving.
- Short-term financial goals are the things you want to afford in one to two years’ time like saving for an emergency fund, going on holiday or becoming debt-free.
- Medium-term financial goals are the more expensive items you need two to five years to save up for like the purchase of a car or making a deposit on a house.
- Long-term financial goals are the savings you need to put aside for a far longer period of time so that you will be able to afford your children’s education and your retirement.
Here’s why you need to set financial goals for yourself:
Reason 1: When you know what you are saving for you have purpose.
With clear targets, you will have something to save for. Cutting out coupons, saving where you can and sticking to your budget will have more motivation behind it when you know why you are doing it.
Tip: Write each of your targets down, add the amount you need to save respectively and perhaps even add an image. Place this document somewhere you will see it often as motivation.
Reason 2: You can protect yourself from making new debt.
By assessing your short-, medium- and long-term needs and putting money away for it you can prevent yourself from making new debt when the time comes.
Reason 3: It allows you to foster a savings habit.
Saving is demanding because it is human nature to want to spoil yourself every now and again. However, clear financial goals help foster a savings habit that will make it easier. And over time these habits will grow in its intensity, especially after you taste the pleasure of meeting your short-term targets.
Reason 4: You can track your progress and gain momentum
With financial goals in place, you will be able to track your progress and hold yourself accountable. As you see your various savings grow and mature it will drive you to stick to the plan and tackle your goals more aggressively.
Reason 5: It can give you peace of mind.
If you do not have any savings, especially for the education of your children or for your retirement, you are probably having sleepless nights whenever you think about it. By setting goals, creating a plan and then following it, you will have peace of mind that you are slowly but surely saving towards financial security.
Keep in mind: In order for you to be successful in reaching your financial goals, every goal has to be Flexible and Feasible.
Once you have your financial goals clearly stipulated and categorised, you will need a plan to help move you along. In our next blog post, we will help you create a Savings Plan that can help you do just that.