Setting financial goals can be overwhelming and intimidating. However, by thinking about financial goals you are on the right track to being in control of your finances. Having control over your personal financial situation can be very rewarding and empowering. Setting goals is the beginning.
When brainstorming financial goals you want to ensure the goals are realistic and achievable. If you are in a relationship where you share finances, both parties should be active participants, and should both agree that the goal is attainable. This will involve doing some groundwork.
Begin by setting both a bigger goal and a smaller goal. These goals may also translate into short term and long term goals. A big or long term goal may be to buy a house in the next five year, while a short term goal may be to pay off your credit card in the next five months. It is important that you write down your goals and re-visit them periodically. This process will help increase your probability of achieving the goal.
SAVING
Paying off debts and saving money are often very common goals. When considering saving for a large purchase, you must be careful to include all expenses when calculating the amount of money required. By taking all costs into consideration you will be able to better determine whether or not the goal is realistic and feasible.
For example:
| Estimated Cost |
Real Cost |
- My Goal: buy a car
- Cost: $5000
- Timeline: 1 year
- Cost: $417 per month
|
- Save up to buy a car = $5000/12 months = $417/month
- Other costs:
– Insurance: $700/year = $58/month
– Gas: $120/month
– Maintenance: $50/month
– Cost: $228/month
- Actual Cost = $645 per month
|
Saving even small amount of money is always a good start. One goal may be to put money aside for an emergency fund. An emergency fund will help you through difficult times, such as loss of employment, illness, or even unexpected car or house repairs. It will also provide you with some reassurance and lessen your stress knowing that you are prepared financially should a situation arise.
Another goal for saving money may include paying off your mortgage faster. If you are in the situation where your income has increased, or you have excess money, you may want to consider increasing your monthly mortgage payments. By increasing your payments you will not only pay off your mortgage more rapidly, but also and save money on interest!
PAYING DOWN DEBT
If you are working hard to pay off debt, it is important that you are strategic with your approach. Be sure to take into consideration the interest rates on each separate debt. If you are interested in saving more money as you pay down your credit card debt, you can pay off the higher interest rate card first. This method is preferred by some because the longer you pay high interest — especially if your balance is higher — the more money goes straight into someone else’s pocket without benefiting you. By getting the higher interest rate out of the way first, you are eliminating the most expensive debt while interest accrues more slowly on your other credit cards. http://financialhighway.com
Should you have high interest rates, you may want to consider re-structuring your debt into lower interest loans. This may involve the following options:
1) Lower current interest rates. Speak to your financial lender to see if they are able to lower interest rates on your current debts.
2) Debt consolidation. This entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan
3) Equity Loan. If you have assets with equity you may wish turn your equity into cash. For example, a Home Equity Loan generally lets you use your home as collateral to borrow up to 80% of its current value minus what you owe.
TAKING ACTION
Once you have decided on your goals, you need to make an action plan to keep you on track and honest. To begin, sit down and re-work your budget based on your goals. To buy that house in five years you may have to cut money from another area of your budget. Look at fixed versus variable expenses. Highlight the areas in your budget where you can decrease spending in order to increase savings. By re-working your budget, you will know exactly where your money is going and what you can or cannot afford to spend.
Put an action plan into place to ensure the money is being distributed properly. For example, if you wish to save for a car you may want to open a savings account to put money into each month. By opening a separate account for your savings, you will be less likely to accidently spend this money which you have allocated for your savings. Set up direct debits from your bank account or paycheque, this way saving will be non-negotiable.
Be pro-active not reactive. Get on the phone and call your creditors to see how they can help you. Research possibilities for re-structuring your debt and take the time to crunch the numbers. Try exploring different savings and investment vehicles such as investments that pay money, stocks or mutual finds. If you are require assistance, call your financial institution or seek out the assistance of a credit counselor.
It is crucial that you put your words into action, allowing you to transform your goal from an idea into a reality. If you need help setting and obtaining your financial goals our Credit Counselor is available to help. Our Credit Counseling service is free of charge. Simply call 1-866-892-2441.
By: Ellan Dickieson, Family Service PEI