How to set realistic financial goals
It’s difficult to save if you don’t know what you’re saving for, so the first step is to define the top three financial goals you want to achieve this year. Prioritize your goals and with this formula in mind, work backwards to figure out the best way to save towards your end goal.
For example, maybe you want to build up $30,000 into your emergency fund, save enough for a down payment on a house, and continue contributing to your 401(k).
Now what does 20% look like in a dollar amount on a monthly basis in order to meet these goals? Can you divide that amount into your three goals?
If so, great – start saving! Set up an automatic savings plan or contribution into a specific account and then review it quarterly and annually to see if there is room to adjust and meet your goals even sooner.
If not, take a closer look at each category and figure out if there is a way to reduce your fixed expenses or variable spending in order to save more towards your goals. Can you make it work now that you know what to prioritize and save for? Is there an opportunity to make changes in your budget or lifestyle to accommodate for these savings goals?
And remember, don’t get hung up on the 20%—the most important thing is to simply start saving. Even if you can only save 1% of your income this year, that’s better than nothing. And then continue reviewing your numbers until you can get to a comfortable place of saving 20% on an annual basis.
This framework is just a starting point. Every situation is different, and is continually changing. So always crunch the numbers for yourself to determine what the right formula for you is to save towards your financial goals.
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Financial advice for real people, by real people. You shouldn't need a degree to understand your money. Join Head of Education, Brittney Castro and Altruist mentors as they break down financial tips and strategies in a real way to help you finally understand how to achieve your financial goals faster.
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