The Importance of Setting Your Long-Term Financial Goals

What are your financial hopes and dreams for your future: to own a second home? Retire by age 50? Send your future kids to college without a single student loan?

Setting those goals for the faraway future is important. Not only can these aspirations help you visualize what you want to achieve, they can set you on the path to take control of your finances and start saving. Typically, these are things you want to achieve that are at least seven years ahead of you or perhaps much further out.

When you establish your goals, you can commit to them, save towards them, and watch your money grow.

The first step involves planning, and here’s where you’ll learn some smart moves to make. You’ll find out how to identify what you want to achieve and then start on the path to making those goals a reality.

Starting by Thinking Big

Setting goals can really fire a person up to achieve big things. 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? 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 you’d like to achieve.

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 as well as some goals that feel personal. Some examples to contemplate:

•   “Start my own bakery business.”

•   “Travel across every continent, writing about it as I go.”

•   “Buy a property in the desert and build a home to rent as an Airbnb.”

•   “Start a scholarship fund for low-income high school students.”

•   “Pay for my parents’ retirement expenses, so they don’t have to worry.”

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 self-reflection in order to establish your goals. Think, write, and revise.

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? This process will help you set your long-term financial goals so you can then go about achieving them.

Breaking Your Goals 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? Which are most pressing?

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

As you prioritize and break down your various long-term goals, you might find it helpful to place dollar amounts on these components.

Examples of Financial Prioritization

Consider the goals “save for retirement” and “start my own bakery business.” Are you ready to tackle them? Begin with retirement:

•   Ask yourself if it might be important to first focus on any outstanding shorter-term debts. For instance, if you’re in credit card debt, develop a plan to get out from under it.

•   If you don’t have an emergency fund that covers at least three to six months’ worth 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.

Next, think about starting your own business. To prioritize, you might think about and plan the following:

•   What do you need to learn? Can you do online research and consult your local library?

•   Cultivate a mentor. This can be as easy as finding someone who’s currently a small business owner and asking them out to coffee.

•   Research the dollars and cents. Do your research about the costs of opening and sustaining a bakery. What is required to establish this kind of business? You may be able to read up on business plans online. What fees and expenses are involved? What would a business loan vs. personal loan look like?

These steps can help you dig into your financial goal-setting process.

Take Action and Be Accountable

Next, explore how you will 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.

•   Buddy up. You could tell someone you trust (a friend or relative perhaps) about your goals, and set monthly or quarterly check-ins to review progress. Schedule those calls or meetings, and put them in your calendar to make sure they don’t get lost in the ether.

•   Talk to your partner. If you have a partner, be sure to discuss your goals with them — they can help you achieve them and support you as you move forward.

•   Automate your savings. This can help you get started by making the whole process seamless. Whether you are saving to get out of credit card debt as a first step or are growing a retirement fund, having money automatically whisked out of checking and into a savings vehicle can accelerate your progress.

•   Consult with a professional. As you work towards your long-term goals, you may want to meet with a financial professional or business advisor, depending on your needs. They can counsel you on the best way to achieve your long-term financial aspirations.

•   Understand that it’s not always a straight line to success. When you hit speed bumps along the road, you might 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.”

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. Shop around for a financial institution that can be a solid partner for you and offer you helpful ways to better manage your money and grow your wealth.

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