Have you been putting off creating a budget or tried it with no success? Breathe a sigh of relief because you can still achieve your financial goals without one. Laura gives you 5 steps to grow rich even if budgeting isn't your thing.
2. Consider your financial end game.
After you know your net worth, it’s time to create a financial plan. This doesn’t have to take a long time or be complex. You don’t need to be a financial whiz or have a high-paying job to achieve significant financial goals.
Think about the big picture of your life and consider your financial end game. What financial and nonfinancial dreams do you have? Why do you want more financial success in the first place?
Take a moment to reconnect with what’s important to you. I find that’s it’s helpful to imagine my life five years from now. Consider where you’re living and how you spend your time. What would make you proud to say that you had accomplished between now and then?
Time passes quickly, so don’t underestimate how much small decisions and everyday actions impact your finances decades from now.
Then stretch your imagination out further and do the same for your life in 10 or 20 years. Go further and imagine you’re on your deathbed with just a few hours left to live. What accomplishments would make you feel good about yourself even in your final hours?
These types of heavy questions can give you important information about yourself and inspire you to begin planning for what truly matters to you. Maybe you want to travel the world in retirement, pay for your kids’ college, take a nice vacation every year, move into a bigger place, give to charitable organizations, or just be prepared for the day you can no longer work. It’s your call.
Time passes quickly, so don’t underestimate how much small decisions and everyday actions impact your finances decades from now. We all want a financial future with more freedom, not less. By thinking about the end game first, you focus on your dreams, which can make necessary sacrifices easier to handle.
3. Decide on your financial goals.
Once you know where your finances stand today, by creating a Personal Financial Statement, and you have some idea about what you want to achieve in the future, it’s time to create specific financial goals to clarify your intent.
There are three different types of goals to consider when you’re doing financial planning: short-term, medium-term, and long-term.
Short-term financial goals are those you want to achieve within a year. You might want to max out a retirement account, buy a new car, save for holiday gift giving, or donate a percentage of income to charity.
If there’s one short-term goal you should have, be determined to establish an emergency fund. Having a cash reserve is key for staying out of financial trouble. None of us knows what the future holds when it comes to our income, our health, or our economy. So, hope for the best, but always plan for the worst by keeping a healthy cash cushion in the bank.
If there’s one short-term goal you should have, be determined to establish an emergency fund.
Medium-term financial goals are those you want to accomplish in the range of one to five years in the future. These might include beefing up your emergency fund, paying off debt, saving for a down payment on a home, or saving for your children’s education.
Long-term financial goals are those you intend to achieve more than five years into the future. Of course, the granddaddy of all long-term goals is saving for retirement. And perhaps, if you can afford it, saving for the education of a young child.
I recommend that everyone make a goal to invest a minimum of 10% to 15% of their gross income for retirement. Here are some resources to learn more about special tax-advantaged accounts that can help you achieve long-term goals like retirement, paying for education, and healthcare costs:
- Retirement Q&A: How to Choose Accounts, Manage Rise, and Cut Fees (Podcast 502)
- Should You Use a 529 Plan to Pay for College? (Podcast 504)
- How to Save Money on Healthcare With an HSA (Podcast 391)