How To Set Short-Term Financial Goals for Yourself

This is a guest post by Bash Sarmiento

Your lifestyle and risk tolerance with money is different from everyone else’s. How you approach your finances is entirely unique. Regardless of how you spend and save money, it’s helpful to establish short-term financial goals if you want to achieve financial security.

Without short-term financial goals, you have less guidance in handling your day-to-day finances. You may end up overspending and taking on debt, putting your long-term financial goals in stagnation. In a nutshell, short-term goals are the result after you break down your long-term financial goals, making them easier to achieve.

What are short-term financial goals?

Short-term financial goals are goals that you can achieve in a relatively short time frame. Ideally, a short-term goal can be achieved within three years. These goals can contribute to your progress towards long-term goals such as retirement and paying off a mortgage. Examples of the most common short-term financial goals are paying off credit card debt, saving for a vacation, and saving for an expensive gadget.

Follow the SMART criteria

Standing for specific, measurable, actionable, relevant, and time-bound, SMART is a criterion created to guide people in establishing goals and objectives. By following the SMART criteria, you can set clear goals that have specific steps towards their achievement and a definite indication of success.

For instance, a goal not following SMART will just say “save money”, not indicating what the money is being saved for and how much should be saved at a given time. On the other hand, a SMART goal will say “Save $50 USD per month to afford a week-long vacation next year”.

Short-term financial goals for everyone

How you set short-term financial goals should center on following the SMART criteria. The following are examples of SMART goals that everyone can set for themselves.

Start saving for an emergency fund

Nobody wants disasters and tragedies, but life is unpredictable and the only thing we can control is how prepared we are. This is why everybody needs a safety net, a pool of money you can take from in times of emergency. Building an emergency fund should be at the top of your short-term financial goals.

Your emergency fund's size depends on your income and risk tolerance. The more you earn, the bigger your emergency funds should be. The general rule in building an emergency fund is “out of sight and out of mind”, meaning you should automate depositing into it and only access it during emergencies.

Track your spending

It’s hard to set short-term financial goals if you don’t know how much exactly are you spending in a given time. Having no sense of your spending habits is synonymous to being cavalier with your finances. You will be prone to overspending and it will be a lot harder to save money.

To start tracking your spending, you can choose from the best budgeting apps available today. Most of these applications link together all your accounts and place your credit and debit card transactions under budgeting categories. On the other hand, you can track your spending manually by gathering receipts and billing statements and organizing them in an electronic spreadsheet or on paper.

Once you’ve got a good grasp of your spending, you can set a realistic budget that can help you make better spending decisions. It can be a weekly or monthly budget, just make sure you aren’t setting it too low or too high.

Improve your financial literacy

Among the biggest roadblocks to financial wellness is the lack of financial literacy. Many people get overwhelmed by financial jargon they don’t understand so they fail to take control of their finances. By improving your financial literacy, you will gain the competence and confidence to manage, save, and invest your money. Financial literacy enables you to implement strategies such as taking personal loans to save money or open opportunities like investing in bitcoin and other cryptocurrencies.

There is no shortage of resources for improving your financial literacy. You can subscribe to financial newsletters, listen to podcasts, read finance books, or hire a financial expert. Whichever you prefer will work if you open yourself up to learning.

Reduce spending

Once you’ve tracked your spending and become financially literate, you will better understand your expenses and determine which ones are unnecessary. Reducing your spending is a great way to make ends meet and help increase how much you can save every month. In times of inflation, furlough, job loss, or other setbacks, it will be critical to prioritize your spending in order to keep expenses to a minimum.

Pay off debts one at a time

Among most people’s long-term financial goals is to be debt-free, and the best way of achieving that is to pay off debts one at a time. If you have multiple debts, focus on paying one before moving on to the other. You can approach paying off debt in two ways:

Snowball Method, in which you pay off smaller debts first so you can see your progress.
The Avalance Method, in which you prioritize debts with higher interest rates so you can avoid paying compounding interest and save money.

Conclusion

Short-term financial goals are the building blocks of your long-term financial goals, and by extension, your long-term life goals. You’ll have no trouble finding financial advice on the internet and once you’re financially literate, you’ll be mostly fine on your own. However, what your short-term financial goals should be will depend on your circumstances and priorities. Always remember that how you handle your finances is unique and you shouldn’t go out of your way to imitate others.