Setting your financial goals provides a household or an individual with a road map towards maintaining and building wealth. Financial goal setting can be done at anytime and should be done with the intent of maintaining a thought out financial plan for the individual or household. A professional such as an accountant, a financial planner, a banker or even an attorney can assist in designing financial goals but they are not required.
If one stops to consider for a moment, every corporation has some form of financial goal stated in their annual report or their statement for the mission of the company. These stated goals sets the course for the companies to make the business decisions that they need to make during the course of the year to achieve their goals. It is not enough to state that a company simply desires to be profitable. Many public traded companies for example specifically state what they project their quarterly earnings to be as well as he company’s share value. Many companies have fired their management for failing to achieve their targeted earnings even though the company has achieved and maintained profitability.
If this model is good for companies and corporations, it will also work for household budgets. Considerations for households include, planning for retirement, planning for the college education of children, planning for sustained care of a parent among other considerations.
The process does not have to be complicated. Setting a financial goal is simply stating what do you desire to achieve financially at a set point in the future. The critical elements are to set a specific number that one desires to earn, obtain or achieve and at what point in the future. a specific date must be set otherwise it is not a goal. A fixed point will allow the goal setter to determine where they are in process and the goal will serve as a guide to important decisions that will need to be made along the way to achieving the goal.
The following considerations should be engaged in setting a financial goal.
- What are the household spending habits over the course of a month, a quarter and a year? This will help provide an indication of where cash flows out of the household budget and if spending habits need to be changed.
- How many years of sustained income will the household continue to receive? Barring any unforeseen events, one should determine what they should reasonably expect to receive over period of years in the future. Bonuses and pay raises should not be counted upon.
- What would happen if one’s income stopped. How long would it take for other streams of income to be generated and would the new income streams be at the same level of the income one once received to sustain their current spending habits?
4. How large of a family is one proposing to support and where will the family be located?