8 Smart Financial Goals You Can Implement Right Now
Setting financial goals is the first step in crafting a sturdy financial plan. Goals serve as a guiding light and offer you a tangible roadmap. They ensure you stay focused and on track. Assigning specific timelines to each goal helps you turn your dreams and desires into actionable achievements. This structured approach also prevents you from prioritizing some goals over others. However, it is essential to set smart financial goals in order to get the most from this process. Setting goals is not just about listing things on a piece of paper. It requires a methodical approach of evaluating your needs, understanding your income sources, planning for the future, and more.
You may consult with a financial advisor who can help you set the right goals after assessing your financial situation. This article highlights some smart financial goals that you can implement right now to ensure you are on track to achieve financial freedom.
8 smart financial goals you may consider adding to your financial plan right now
1. Building an emergency fund
Building an emergency fund is paramount to secure your financial stability. You can safeguard your financial well-being by saving an amount equivalent to three to six months' worth of living expenses. This financial reserve can lend you a helping hand in navigating unexpected financial crises, including job loss, house repairs, medical emergencies, unplanned relocation expenses due to personal reasons, and more. Your emergency fund should ideally be maintained in a liquid and accessible account, such as a bank account. This can help you optimize its utility. It is advisable to choose a high-yield savings account to ensure the funds do not remain idle and beat inflation in the long run.
An important point to note is that an emergency fund should be exclusively used for unforeseen circumstances. Using it for purposes other than emergencies can diminish its value, and you may find yourself short on funds when an emergency actually strikes.
2. Planning for retirement
Planning for retirement is one of the most pivotal financial goals you can set for yourself. While retirement might appear distant on your horizon, it is vital to start saving for it from a young age. Keeping a proactive approach to retirement ensures that you are not reliant on others, such as your children, to meet your basic needs during your golden years.
Understand that saving for retirement is a gradual, long-term process. It can take years to save enough funds. It also demands consistent dedication and strategic financial planning. Explore various savings and investment avenues, such as a 401(k), Individual Retirement Account (IRA), stocks, bonds, and other investment vehicles. One of the critical considerations in this step is understanding the tax implications associated with each of these investment options. Decide whether you want to pay taxes on your contributions now or defer them until retirement. The choice you make may impact your overall savings and the income you will have during your retirement years. So, make informed decisions to optimize your financial resources for the future.
Additionally, planning for your golden years necessitates a comprehensive evaluation of your long-term retirement goals. This includes healthcare, long-term care, and contemplating the needs of your dependents, such as your spouse and children who may rely on you financially in retirement.
3. Paying off debt
Eliminating high-interest debt is another strategic financial goal that ideally demands your immediate attention. Debt can pose a significant threat to your financial well-being, primarily when high interest rates accrue over time. It can erode the foundation of your financial security and diminish your savings. The more debt you owe, the more difficult it becomes to break free from the cycle. High-interest debt can trap you in a relentless loop where your earnings are perpetually spent on debt repayments. Ultimately, it leaves very little room for any financial progress. This vicious cycle can further force you to take on more debt and worsen the situation.
It is vital to regain control of your money and fortify your financial situation by eliminating debt at the earliest. You may start by targeting high-interest debt. Make sure to consider all types of debts such as credit cards, loans, and mortgages. Gradually work your way down to low-interest debts until all your debts are cleared. You must also be disciplined and limit the temptation to accumulate new debt while you are working to pay off existing ones. This will not only prevent your debt from escalating but also reinforce financial discipline. You may also consider debt consolidation. Consolidating high-interest debts into a single, manageable loan with a lower interest rate can help you streamline the repayment process. This can lower your overall financial strain.
4. Creating a diversified portfolio
Crafting a diversified portfolio enables you to achieve your various financial aspirations. A diversified portfolio allows you to spread risk and align your investments to your unique goals and ambitions. It can be tailored to align with specific financial goals, such as retirement, higher education, or home ownership. You can choose different investments to match the time horizon and risk tolerance associated with each goal. For instance, stocks can be ideal for retirement as they need a long investment horizon, while bonds can be better for immediate needs like buying a car as they can be more stable in the short term.
Diversifying across different asset classes, such as gold, stocks, real estate, bonds, and commodities, can help you mitigate risks associated with individual assets. Portfolios that are well-diversified tend to be more stable during market fluctuations. Even though certain sectors may decline during a market downturn, others might flourish. Diversified portfolios often include assets with low or negative correlation. This means they do not move in sync with each other. As a result, the overall portfolio's performance is balanced, and it offers your money broader exposure to potentially generate higher overall returns. Certain assets, such as real estate and gold, can also act as a hedge against inflation. These assets tend to retain or increase in value when inflation rises and protect the purchasing power of your investments.
Diversification is not only limited to asset classes. It also enables you to expose yourself to different economies and global markets. For instance, if you invest in a company based out of Europe while the rest of your portfolio is invested in American companies, you benefit from economic growth in different regions. If one economy suffers and stock prices fall, you can balance out the losses with potential gains in another economy.
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5. Saving for your child's higher education expenses
Setting money aside for your children's education expenses is another smart financial goal that holds immense importance in today's rapidly changing economic landscape. Inflation is one of the key factors that make it essential for you to start saving for your child's future needs. As time progresses, the purchasing power of your money falls. This makes it harder to save for future expenses. Education costs have witnessed a staggering increase in recent years. Saving diligently helps you mitigate the financial strain associated with higher education. You get to give your child access to quality education without burdening them with significant student loans. This financial support can pave the way for your child's success and empower them to focus on their studies, learn new skills, and pursue their passions without worrying about financial constraints.
The 529 savings plan is a tax-advantaged savings account that may be ideal for this goal. This savings vehicle can offer several benefits, such as tax-free growth, compounding, and systematic savings and withdrawals. Qualified withdrawals from the account used for education expenses, including tuition, books, and room and board, are also tax-free. This maximizes the value of your savings and enables you to plan systematically for your child's future success.
6. Owning a home
Owning a home offers several benefits. Firstly, a home is a tangible asset. It is a place to call your own. This asset is not just a physical space. It represents security and provides a stable environment for you and your family. Furthermore, it acts as a legacy. You can pass down your home to your children and grandchildren and offer them a solid foundation and a sense of belonging.
A home appreciates in value over time. It also serves as valuable collateral to provide a safety net in times of financial need. You can leverage it to raise funds for varied goals such as your children's education planning, starting a business, or handling a medical emergency. Real estate is a high-value asset. Its inherent value ensures that you have a substantial reserve that can be tapped into during unforeseen circumstances. In times of economic downturn, property values tend to hold. You can sell your property and downsize and generate a substantial sum of money that can be utilized for other financial needs. Alternatively, you can choose to rent or lease it out and create a steady income stream. This can also help you diversify your sources of revenue.
However, to achieve this smart financial goal, you must save for a down payment. You can choose several options, such as creating a dedicated savings account solely for the down payment. It can help to set up an automatic transfer from your paycheck into this account to ensure consistency. Additionally, you can also explore options like stocks, bonds, mutual funds, or Exchange-Traded Funds (ETFs). It is also essential to cut down on non-essential expenses and invest the money you save to grow your money and accelerate your down payment savings.
7. Starting a business
Starting a business is another smart financial goal that you can look to adopt. It can offer you a multitude of advantages. One of the primary benefits of starting a business is the ability to diversify your income streams. A business helps you create an additional source of income and reduce your reliance on a single paycheck. This diversification not only provides financial security but also acts as a safety net during economic uncertainties.
A business can be a side hustle or a full-time endeavor. As a side hustle, it can help you nurture your entrepreneurial aspirations while still maintaining a stable job. The flexibility of running a business alongside your employment can provide you with a supplementary income and widen your professional network. You can also solely focus on your businesses. Unlike a traditional job, where your income is often capped, a successful business can generate limitless profits. A business is not solely defined by a monthly salary, and you have the chance to reap significant profits, accumulate wealth, and build a legacy for future generations.
However, establishing a business can be challenging. It requires hard work and dedication. If you are starting a business while working full-time or part-time, you can find it even harder. Taking out the time and focusing on two areas of work can be tricky, but it is not impossible. You can try to divide your time suitably. Weekends can be dedicated to your business, while you can work on your job on the weekdays. Slowly but steadily, as your business picks up, you can quit your job or even continue with it, depending on what feels the best at the time. With meticulous planning, determination, and a willingness to adapt your schedule, you can run a successful business and diversify your income stream.
8. Creating a will and an estate plan
Drafting a will and estate plan are two essential goals of financial management to ensure your hard-earned money and other assets are distributed according to your wishes. Meticulously planning your estate provides financial security for your loved ones while offering you peace of mind. One of the primary purposes of a will is to clearly outline how your assets, such as your house, investments, personal belongings, collectibles, and bank accounts, will be distributed among your heirs. A will helps you retain control over your estate and determine who inherits what and in what proportions. Without a will, your assets may be subject to probate, which can be a long and expensive legal procedure.
Estate planning goes beyond the distribution of assets. It also involves appointing guardians for minor children, setting up trusts with guidelines on how and when your funds are used, specifying healthcare directives, and naming an executor who will manage your affairs and ensure your wishes are carried out. Additionally, a comprehensive estate plan can minimize the tax implications on your estate and safeguard your assets from unnecessary taxation. This, in turn, can maximize the inheritance received by your beneficiaries.
Creating a will and estate plan is especially crucial if you own a business. A business succession plan can offer clarity to your beneficiaries and ensure your company does not suffer. It is also essential if you have considerable assets. Without a clear plan in place, these situations may lead to legal complications and disputes among family members.
To conclude
Setting and achieving smart financial goals are small steps toward ensuring financial stability and security. These goals can set the foundation for a financially fulfilling life in a steady and systematic manner. However, achieving these goals requires determination, strategic planning, and a clear vision.
While it is possible to pursue these goals on your own, it can help to get professional assistance from a financial advisor. Use the free advisor match service to find a qualified financial advisor who can offer the support you need to attain your financial goals. Answer a few questions about your financial needs, and our matching tool can connect you with 2 to 3 advisors who may be suited to help you.
