Financial goals – Short, medium and long term

Financial goals serve to direct your actions, allowing you to achieve success in all areas of your life.

For example, short-term goals provide quick achievement.

Secondly, medium-term goals serve to broaden our horizons.

Long-term goals, on the other hand, represent your biggest dreams.

Read on and find out all the information you need on the subject.

What are financial goals?

A financial goal is the use of strategies to achieve a certain objective.

These strategies are defined as using your money wisely, so that you can achieve something within a planned period.

In other words, the goal is to tell you what level of wealth accumulation you need to reach in order to achieve a certain objective.

According to financial psychology, goals are fundamental for making commitments to yourself.

But when we talk about financial goals, we’re not simply talking about the importance of defining something you’d really like to buy.

For example, in a family context, the most common dream and goal would be to buy a property.

To do this, the family should set itself the goal of saving money for a certain period of time in order to apply for a mortgage for the property.

Another interesting goal would be to accumulate a specific amount of money in order to repay the mortgage and speed up the purchase of the property.

Financial objective

To make it even clearer, know that objectives are general results that you want to achieve in your life.

Therefore, they are less specific when we talk about details and deadlines, and when compared to financial goals.

In other words, a financial objective is a financial state that you want to achieve in the long term.

Examples include financial security.

This means that you have enough resources to deal with unexpected situations without compromising your financial stability.

As for financial independence, this is the state in which you are not entirely dependent on a job to maintain your standard of living.

Finally, another example of a financial objective would be building wealth.

That is, accumulating assets and investments over time in order to provide financial security for you and your family.

What are the benefits of financial goals?

First, it’s worth mentioning that goals help you focus on your priorities and avoid distractions.

One of the main strategies for your finances would be to cut down on unnecessary spending.

However, this is only done when you have a well-defined goal in mind.

Otherwise, you’ll embrace the first opportunity to spend money on an item you don’t need.

In other words, through goals, you create greater responsibility.

This responsibility can strengthen your financial discipline and lead to greater financial success in the long term.

The sense of purpose you get from setting a goal will help you stay motivated and committed, even when the road to financial success seems long and difficult.

Secondly, understand that financial goals serve to measure your progress.

Through this tool, you can see how much you have achieved and make the necessary adjustments along the way.

Going back to the example of a goal in which a family puts money together to make a down payment on their house, they might observe the following:

They set themselves 3 months to get the down payment together, but actually need 6 months to do so.

If you notice this in the first month, you can change your plans and make sure that the goal is met in an appropriate amount of time.

This also allows you to see the small victories and celebrate them.

It may be that you haven’t achieved your dream home in a year, but if you look at the smaller financial goals, you’ll see that during that time you’ve been able to save money and pay off debts.

Other advantages of setting goals

Thirdly, realize that setting goals helps you overcome financial stress.

A person who is constantly struggling to make ends meet and is drowning in debt has a lot of anxiety.

But goals help relieve stress because you have a plan and a path to follow.

This sense of control can make a significant difference in reducing financial stress levels and improving your general well-being.

You even know that you won’t be in this situation for the rest of your life.

When we face financial problems, it’s common to think that it will never end, but that’s not true.

On the other hand, in our article “Simple steps to achieve financial freedom by 2024”, we made the following clear:

A high-income person may not have financial freedom.

That’s because financial success isn’t just about earning a lot of money, it’s about planning for the future.

Through goals, you prepare for unforeseen circumstances, build a retirement fund and invest in an asset that will appreciate over time.

Otherwise, an individual will continue to earn millions a year, but will always have financial problems because they don’t care about their future.

Tips for setting financial goals

One of the main tips we’re going to cover in this content is the SMART method.

This is an acronym that represents five criteria that a goal must meet in order to be considered realistic, clear and easy to achieve:

Specific, Measurable, Achievable, Relevant and Time-based.

So let’s take a look at how each concept works in practice:

A specific goal is one that is also practical, and you can visualize exactly what you have to do to achieve it.

For example, saving money is a broad goal.

But when the aim is to save R$1,000 every month so that at the end of the year you have R$1,2000 to buy a car, this is in fact a specific goal.

As for measurable financial goals, these are the ones where you can evaluate your progress.

In other words, you know exactly how far you have to go.

Following the same example above, after 5 months you calculate that you have saved R$5,000.

You also know that you only have R$7,000 left to reach your goal.

On the other hand, talking about the achievable goal.

This means that your goal is realistic and has been adjusted to your current situation.

If your salary is R$2,000 and your monthly expenses are R$1,000, it’s unlikely that you’ll be able to save exactly R$1,000 a month.

Setting such a goal can be a mistake and the chances of not achieving it are very high.

More information on the SMART method

Regarding the importance of your financial goals being relevant, the following is worth mentioning:

Following the same example, think about whether it’s worth spending R$12,000 on a car without first having an emergency fund.

Imagine that, after a year, you buy your dream car, but in the first month you have an unforeseen event related to your child’s health.

If the entire amount has been spent on buying the car, how will the situation be resolved?

The person will probably have to borrow money to deal with the problem, but if they had been wise and prioritized a relevant financial goal, this wouldn’t have been necessary.

Finally, make sure the goal is time-based.

Time is of the essence when planning a financial goal. 

It can vary greatly, depending on the level of difficulty, but it is essential for evaluating your progress.

Short-term financial goals

This is defined as a short-term goal, something you intend to achieve in less than a year.

For example, buying a cell phone, saving for a trip or paying off a certain debt.

So here’s what we should say:

With each goal we mention (short, medium and long term), we’ll be talking about one or more goals that are fundamental to all people, regardless of who they are.

For example, in the case of a short-term goal, everyone should set a budget.

You may be startled by how much money is slipping away each month due to a lack of planning.

In order to avoid this kind of problem in a simple way, you need to have a budget program.

You can use a free tool to help you with this. The important thing is that the information from your accounts is combined and managed in one place.

In addition, it’s interesting to label each expense by category in order to meet your financial goals.

You can also choose to create a budget the old-fashioned way.

That is, you analyze your bank statements and bills from the last few months and categorize each expense on a piece of paper or spreadsheet.

When you see how you are spending your money, you are guided by this information.

That way, when you go to buy something in the future, you’ll make a better decision because you want your money to be invested in your future.

At this point, you start to consider whether the extra money you spend every month on eating out is really worth it.

If the answer is yes, great! But if not, through budgeting, you’ll discover a simple way to save money every month.

You can look for ways to spend less on dining, replace some restaurant meals with home-cooked meals or do a combination of the two.

Emergency fund

We’ve already mentioned the need for an emergency fund as a financial goal in one of the examples above.

But what does that actually mean?

Well, the emergency fund is the amount of money set aside to pay for unexpected expenses.

In the beginning, having $500 to $1,000 is a good goal. 

And once you’ve reached that goal, it’s important to expand it so that your emergency fund can cover greater financial difficulties.

For example, imagine the case of a person who has been unemployed for months.

I’m sure many people have faced this problem during the COVID-19 pandemic and would have loved to have had an emergency fund when the crisis hit.

According to Ilene Davis, certified financial planner (CFP) at Financial Independence Services in Cocoa, Florida, you should have 3 to 6 months of money saved to cover financial obligations and basic needs.

The 6-month time frame is especially important for those who are married and work for the same company as their spouse or in the same field with limited job prospects.

Also, according to Davis, it is essential that you find at least one thing in your budget to cut back on and actually meet your financial goals.

In this sense, the amount that was spent on something unnecessary is now invested in your emergency fund.

To have extra money to put into your emergency fund, you can also select items you don’t use and sell them on eBay.

Considering turning a hobby into a job is also a good alternative.

For example, if you like painting, you could make paintings to sell.

Check out more options for extra income here.

Other tips for having an emergency fund

Another interesting step would be to open a savings account and set up an automatic transfer for the amount you have determined you can save each month.

This is interesting because as soon as your salary hits the account, the amount is set aside so that you can reach your goal of having an emergency fund.

Although other factors are important, such as the idea of saving for retirement, creating an emergency fund should be a priority.

Pay off credit card debt to meet your financial goals

Some experts say that it is essential to create an emergency fund before paying off debts.

This is because without an emergency fund, any unexpected expense will cause your credit card debt to increase.

Secondly, there are professionals who say it is essential to pay off your credit card debt.

The reason is that the interest is so expensive that it makes it much more difficult to achieve any other goal.

In this case, there is no right or wrong, so it’s important that you choose the philosophy that makes the most sense for you in order to meet your financial goals.

What’s more, you can use both strategies at the same time.

In any case, when the time comes to pay off your credit card debts, list all your debts according to their interest rates.

Put the lowest interest debts first, up to the highest.

Then pay off the minimum on all debts except the one with the highest rate.

That way, use any additional funds needed to make extra payments on your highest rate card.

Once you’ve met the short-term goals of organizing your budget, having an emergency fund and paying off your credit card debts, it’s time to think about medium- and long-term goals:

Medium-term financial goals

Saving to start a business, going to college or buying a new car are some of the medium-term goals.

So note that these are goals that can be achieved in 1 to 5 years.

In this sense, we should talk about an essential goal for you:

Getting life insurance and disability income insurance.

For someone who has children and a spouse who depends on their income, it is essential to have insurance.

This is because if the person dies prematurely, the family’s financial security is guaranteed.

In addition, this insurance meets the needs of most people, is less complicated and less expensive.

Another key point when talking about financial goals is to make sure you take out disability insurance, which works as follows:

If a person becomes seriously ill or injured to the point of not being able to work, they receive a benefit greater than the Social Security disability income.

In other words, both the person and their family can live with greater peace of mind.

It’s also worth mentioning the following:

You have to wait a certain period from the time you become unable to work, until the time the insurance benefit starts to be paid.

So note that the emergency fund really is an essential short-term goal in your life.

Long-term financial goals

Here, the goal is to buy a house or save for retirement.

In other words, it takes more than 5 years to achieve.

As an essential goal, we should talk about your retirement.

In this case, it’s important to estimate your retirement needs.

According to Oscar Vives Ortiz, a CPA financial planner at PNC Wealth Management in Tampa Bay/St. Petersburg, Florida, it’s possible to make a quick and approximate estimate of your retirement readiness:

To do this, the first step is to estimate your desired annual expenses during retirement.

We recommend that you use the budget you created earlier when setting short-term goals.

That way, you’ll have an idea of how much you need each year.

And of course, include higher health costs in your retirement-related financial goals.

Next, you should subtract the income you will receive.

In this case, it’s worth including social security, retirement plans and pensions.

As a result, you will know the amount that should be financed by your investment portfolio.

Finally, estimate how much in retirement assets you need for your desired retirement date. 

Base this on what you currently have and save annually. 

An online retirement calculator can do the math for you. 

Final tips

It’s important that you align your financial goals with your values and purpose.

Reflect on what is truly important to you and how your goals contribute to the realization of these values. 

This is essential because you will be more motivated to meet these goals.

Another interesting point is to use a planner to organize everything.

Record your goals, set deadlines, create to-do lists and track your progress using the planner.

Finally, we recommend that you review your financial goals regularly.

Life changes and other factors can affect your goals. 

In this case, it’s essential to review your goals every 6 months or at least once a year to adjust expectations.

“Every time something changes in your life or financial situation, it should be an indicator to review your goals.”

When you take the time to reflect on the purpose behind your financial goals and put them into a realistic framework, you are more likely to remain accountable and confident in your financial plan. 

Daniel 2 de April de 2024