The Importance of Setting Your Long-Term Financial Goals

February 06, 2020 · 7 minute read

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The Importance of Setting Your Long-Term Financial Goals

Long-term financial goals are a daunting subject. A long-term financial goal is typically something that’s at least seven years ahead of you, which can feel like forever away.

But setting long-term financial goals can allow you to be steadfast in your commitment to your finances in general—when you consistently work towards setting yourself up for a more comfortable future, you’ll be more proud of yourself in the present. As the saying goes, people don’t plan to fail—they fail to plan.

First, it’s important not to beat yourself up for not being financially sound enough or feeling like you’re behind your peers.

It’s reasonably difficult for many of us to imagine the distant future when we’re busy covering day-to-day, month-to-month expenses.

According to a recent poll , 40% of Americans reported that they would struggle to cover a $400 unexpected expense. According to data from the Population Reference Bureau, approximately 24% of men and 16% of women ages 65 and older were currently active in the workforce. These numbers are supposed to increase to 26% for men and 18% for women by 2026.

Starting By Thinking Big

Although those statistics are harrowing, they help make a good case for setting seemingly difficult long-term financial goals sooner than later. Indeed, oft-cited psychological research by Edwin Locke and Gary Latham showed that subjects who were assigned specific, challenging goals were 90% more likely to succeed.

The two researchers went on to publish A Theory of Goal Setting and Task Performance, in which they discussed what they’d determined as the five key components of setting achievable goals:

•   Clarity
•   Challenge
•   Commitment
•   Complexity
•   Feedback

What do these mean for your financial goal setting? Let’s break it down. First, you must have clarity and specificity about exactly what you want to accomplish. It can be helpful to start by making two lists—what’s most financially stressful to you right now, and what you might consider a dream that better finances could aid in making real.

While traditional long-term financial goals like saving for retirement or buying a home are worthwhile, they’re so universal that they might seem uninspiring.

Keep in mind that you can and will likely end up working towards those goals and some goals that feel personal. Dream big—what kind of goals might you find meaningful to work towards? Some long-term financial goals we’ve encountered when speaking with SoFi members might spark an idea of your own:

•   “Start my own bakery business and become my own boss.”
•   “Travel throughout every continent, writing about it as I go.”
•   “Buy a property in the desert and build my own personally-designed home to rent as a boutique AirBnB.”
•   “Start a scholarship fund for low-income high school students to enroll in STEM college programs”
•   “Pay for my parents housing and health care costs for the rest of their lives, so they don’t have to worry.”
•   “Release an e-commerce capsule collection of clothing I’ve designed.”

You probably have general ideas of what your long-term financial goals may be, but getting as specific as possible is what can help you the most. You could take time to do some structured self-reflection in order to be clear about exactly what makes your goals matter to you in the biggest way possible—write them down and ask yourself questions about them.

What about your goals is motivating for you? Can you break your big goals down into smaller benchmarks that also motivate you? Do they feel challenging enough to be aspirational and inspiring? You might find it helpful to try not to think of your long-term financial goals as dreams.

Consider them possible realities, ones that you’ll be living in once you start working towards the achievements you’ve identified.

Breaking Them Down

Next comes the harder part—making your commitment to your goals real and tangible. This is where the “complexity” component becomes important. How might you simplify the path you’ll take towards your future?

At this stage, you can take a look at the goals you’ve laid out and prioritize them. Which goals will have the biggest positive impact on your life? Is there a goal that feels like it aligns nicely with the achievement of another?

Next, you can break down the goal into smaller, shorter-term goals. Any big to-do will likely seem overwhelming without a tangible, step-by-step plan towards reaching the end point.

Taken together, the processes of prioritizing and breaking down your various long-term goals all at once can help you be realistic and excited about the processes of achievement. You might find it helpful to place dollar amounts on these components.

Examples of Financial Prioritization

Let’s go over how we might break it down. For example, we can consider the goals “save for retirement” and “start my own bakery business” alongside one another. First, you might find it helpful to focus on any outstanding shorter-term debts—if you’re in credit card debt, consider making it a priority to get out from under it.

If you don’t have an emergency fund that covers at least three months of your expenses, you could commit to contributing towards it until it’s full. How much will you need to put away on a monthly basis? Next, you could research retirement savings options.

You might go through your employer or pursue a separate account on your own. What’s your goal amount of money for this fund? Break down what you’ll need to contribute to get there, month-by-month and year-by-year.

Conversely, you could approach the goal of starting your own business by laying out the steps you’d need to take to get there. For any personal long-term financial goals, it’s possible your initial steps can be delightful or even cost-free:

Research: what do you need to learn? Can you do online research and consult your local library?
Find a mentor: any expert will tell you that they became a master by following in another’s footsteps. This can be as easy as finding someone who’s currently a small business owner and asking them out to coffee, or as huge as approaching your hero for advice via email.

Whatever the first steps are, or whatever the subsequent steps you need to take to move forward after getting started, the important thing that can be truly invaluable is understanding how to develop your own repeatable goal-setting process. Everyone is different, so find what works best for you.

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Being Your Own Accountability Expert

Finally, think about feedback—how will you hold yourself accountable to working towards the benchmarks you’ve identified? Once you’ve identified your goals, prioritized them, broken them down, and put dollar amounts on the pieces that require them, you might find it helpful to find an accountability buddy.

You could tell someone you trust about your goals and ask them to check in with you on a weekly or monthly basis. Schedule those calls or meetings ahead of time and put them in your calendar to make sure they don’t get lost in the ether.

If you have a partner, be sure to discuss your goals with them—they can help you achieve them and support you in ways you might find invaluable as you move forward.

Ultimately, it’s possible that creating your own rewards system and deciding what you’ll do when you fall short could be the most crucial ways to truly ensure your own success. As far as rewards go, this could mean setting aside as little as $40 per month as pure fun money to use after you’ve hit your benchmarks, or it could be saving up for a vacation.

When it comes to self-imposed consequences, it can be helpful to remember that you’ve set these goals in order to develop better habits and experience more happiness in the long run punishing internal monologue likely won’t do you any good.

You can benefit from reframing negative thoughts like “I’m never going to get there” or “I’m a failure” with less catastrophic ones, like “trial and error is crucial to getting anywhere.”

It’s important to set out a prospective system for checking in with yourself, like a weekly log of hits and misses, that allows you to be realistic so you don’t end up hurt by your own blind spots, and you can chart improvement as you go.

Setting Yourself Up For Success

No matter what your long-term financial goals are, it’s the planning that helps make them possible.

Creating plans to achieve your long-term goals can help give your life structure and a deeper sense of purpose in all of your actions.

Using tools can help you get where you want to be—one option to help you do so is open an new bank account with SoFi Checking and Savings®.

It is easy to see your weekly spending within the dashboard to see if you are on track of your budget.

Plus, with SoFi Checking and Savings vaults you can easily create separate vaults within your SoFi Checking and Savings account for different savings goals and purposes. And you’ll be able to easily keep track of progress on each of your vaults.

Want to learn more about SoFi Checking and Savings? Get started today!

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