Congratulations! Well done! You have worked hard, accomplished a huge goal, and are about to take the next step in your life journey. That step may include more education, skills training for a particular job, marriage, and parenthood, or something unique to you. Maybe you are going to take a travel year. This new chapter in your life is exciting and you’re probably anxious to get started.
Up to this point, your parents or another adult probably played a major role in your decisions. Your goals may have been set for you or you may have had input. But now, that changes. From this point on, the bulk of the burden for all your life choices will be on your back. Is that scary? Does it make you anxious? How about your financial journey? You will be in charge unless you want someone else to control your money and finances. Do you feel that you have the knowledge and tools to make wise financial choices?
I like to think that a financial journey is like any other journey or trip. When you make wise travel choices, trips are easy and more fun; you can relax and not worry. But when you make poor travel decisions, they can cause headaches or even ruin your trip. Who needs that? Maybe you are well-traveled and can prepare and pack a suitcase or bag in a few minutes. Maybe the opposite—you have rarely been away from your “comfort zone.” In either case, it makes sense to know a few things before you start packing.
Where Are You Going and for How Long?
When planning for a trip, knowing where you are going and how long you will be gone before you do anything else is essential. For example, a trip outside the United States will require special documents or special shots. Some of them take months to obtain and then have time limitations.
If you travel closer to home, your choices depend on where you are headed and what you will be doing—beachwear or snow skis, hiking gear, or formal wear. Factors such as weather, length of your trip, accommodations, type of clothing, and transportation needs are important.
The same two questions apply to your financial journey. Where are you headed and for how long? Financial goals are spending, saving, and investing targets you hope to achieve over a set period. They vary with lifestyle and stage of life. You may save for a special dress or your first car. These are shorter-term goals. If you start a family, your goal may be to own a home or put money aside for your child’s education, and it is never too early to plan for retirement. These are longer-term goals. You may have education debts to pay, which could be either a short-term or a long-term goal.
Spend time making a list of your financial goals and then separate those goals by when you want to reach them—shorter than seven years and those that are out seven years or longer. Why? Because where you put your money for short-term goals is different than for long-term goals. In that process, remember some expenses will be spread over several years—education and retirement, for example.
You might find the following six financial goal-setting steps helpful:
- Figure out what matters to you. What do you value? (Freedom from debt, charitable giving, a child’s education, etc.)
- Sort out what is within reach.
- Apply a SMART-goal strategy. Are your goals Specific, Measurable, Achievable, Relevant, and Time-Bound?
- Create a realistic budget.
- Automatically transfer any leftover funds to an account to address the first couple of things (priorities) on your list.
- Monitor your progress.
There is more information and a tool to help in my book, How to Dress a Naked Portfolio.. Maybe at first you will focus on short-term goals but do not forget your longer-term destinations.
Things Can Change
Just as your travel priorities change over time, your financial goals will also change. If your destination changes, new plans must be made and existing plans revised. You can count on a hiccup or two along the way. Just like anything else, financial plans require flexibility. For example, when you enter the workforce your goals might include buying furniture for your apartment, travel, and hopefully, starting to invest for your retirement. You meet someone special and decide to become a couple. Your goals now include another person and together you set new priorities. Children may enter the picture and once again your goals change. There is, however, one goal that lasts your whole life and that is eventual retirement. The earlier you start saving for retirement, the greater the power of compounding and that makes your goal easier to attain.
Your Financial Journey Is Unique
Do you prefer to travel alone, with a close friend, or with a group? Perhaps you have done all three and have found that each experience has its pros and cons. However, no one has the same interests as you, the same food preferences, or the same sleeping habits. Some people travel light, and some take their whole closet. Some like to pack their schedule with all kinds of activities and some like regular downtime. There are morning people and night owls. Although they may be similar, your travel needs are different than any other person’s.
It is the same with your financial journey. No one is the same age with the same lifestyle, income, expenses, family circumstances, and tastes as you. Your financial goals and journey will be different. Your priorities are also likely to change over time, so it is important to revisit this exercise periodically, no less than every five years, or when you have an important life-changing event: marriage, birth, death, or divorce, for example. It is tempting to compare notes with a friend or family member. I urge you to honor your unique needs and set your own financial goals. It is your financial journey. Enjoy it and celebrate your successes!
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