How to Set Financial Goals for Improved Financial Health
Do you often find yourself wondering where your money went, why you can’t seem to pay down debt, or why it seems impossible to add to your savings? Are you struggling with your finances but don’t know how to make positive changes? Living paycheck-to-paycheck can be very stressful and unless you have a plan with specific financial goals, you may never find yourself getting ahead.
Taking control of your money doesn’t have to be complicated. At Origin Bank, we have the tools to make financial goal planning simple, with tips and examples to help you enjoy your hard-earned money while still achieving a healthy financial state.
1. What is Financial Health?
When you consider your overall health, you probably think first about your physical health, then your mental or emotional health. But another important aspect of wellness is your financial health, which can affect your everyday life and impact your future just as powerfully as your physical and mental wellbeing.
Financial health is defined as the current state of your monetary situation, such as your credit, debt, savings, investments and income. Being financially healthy means you’re financially secure enough to cover your regular monthly expenses, have enough money in savings to pay for an emergency, and can afford your debt obligations.
Financial health can ebb and flow over time, and it can also differ from person to person. For example, you may feel financially healthy with some savings and credit card debt, while others may find their debt is so large or their savings so minimal, that it drags down their financial health.
There are a few ways you can measure the current health of your finances and find potential room for improvement. Some examples include:
- Calculate your debt-to-income (DTI) ratio: Financial institutions compare how someone’s monthly debt obligation compares to their income to determine their financial health. The lower your ratio the better, as carrying too much debt harms financial health. Calculate your debt-to-income ratio for free at Calculator.net.
- Credit score: Having a strong credit score is a key indicator of good financial health. The factors that affect your credit score include the amounts you owe on your debt accounts, your credit utilization, your repayment track record and the length of your credit history. Credit scores range from 300 to 850 and the higher it is, the more likely you are to get approved for financing with lower interest rates and better terms. Having a credit score above 700 is generally considered good while anything above 800 is considered excellent.
- Emergency fund: If you have enough money in savings to keep you afloat in an unexpected situation, then you are considered financially healthy. Experts generally agree that you should have an emergency fund with three to six months’ worth of living expenses saved so your expenses are covered should you experience an unexpected bump in the road such as a job loss, car breakdown or medical emergency.
- Retirement savings: Planning for your future with retirement savings is an important part of being financially healthy. While there’s no cookie-cutter approach, this article by Nerd Wallet provides insights to help you plan for retirement.
Achieving financial health is an important component of your overall well being. This article by Ally.com provides insights into how the stresses of money can impact more than just your wallet, underscoring the importance of addressing your financial situation. It all begins with financial goal setting.
2. Define Your Goals
Having financial goals will change how you look at your money. You’ll start to learn how every decision you make with your spending impacts your overall financial health. This puts you in the driver’s seat when it comes to your finances, flipping the script so you’re in control of your money instead of the other way around.
To get started, define your financial goals so you have a clear picture of what success looks like to you. Goals can be anything you want them to be, like buying your dream car or indulging in a luxury vacation. They can also be benchmarks such as becoming debt-free within the next five years.
Make sure your goals represent the best choice for you and avoid getting caught up in how others handle their finances. For example, if your friends are all taking out second mortgages to pay for home renovations, that doesn’t necessarily mean you should do the same. Focus on what’s important to you and set goals that are meaningful to your unique situation.
The more specific you can be with your goals, the better. Experts agree that those who are precise in their goal setting are more likely to reach them than those who choose vague, ambiguous targets.
For example, rather than saying “my goal is to travel more,” set your eyes on a particular destination and say instead, “I want to save enough money to take a European vacation within the next two years.” Print out photos of European destinations you want to visit and post them around your home or office as a reminder of your goal so you’re motivated to stay on track.
As you’re getting started, it may help you to think about your goals in two categories: short term and long term. Short term financial goals can realistically be achieved in five years or less, while long term financial goals take five or more years to accomplish and generally apply to major life events.
Some examples of short term financial goals include saving for a summer vacation, establishing an emergency fund, or purchasing supplies for a newfound hobby. Check out this article from Addition Financial to see more examples of short term financial goals and tips for how to achieve them.
Long term financial goals include planning for big life events like saving for retirement, paying for your children’s education, or eliminating all of your debt. This article by DividendsDiversify.com offers 10 examples of long term financial goals for you to consider when defining your specific goals.
Once you’ve identified your short and long term financial goals, it’s time to commit to them in writing. The process of documenting your goals, whether on paper or via a digital resource, makes them tangible and therefore achievable.
Whether you choose to write them on sticky notes you post around your home, type them into the notes app on your phone and set reminders to read them every day, or put them as the wallpaper on your laptop, keeping your goals where you can see them will keep you focused and motivated.
3. Assess Your Situation
With your financial goals firmly in hand, it’s time to take a deep dive into your current financial situation. This task can seem tedious and even a bit overwhelming, but it’s important to have a clear, realistic picture of the state of your finances so you can determine the best path to achieving financial health.
Start by creating an itemized list detailing all your monthly expenses. Every item should be categorized as either essential or non-essential. Essential expenses include life’s necessities such as groceries and rent or mortgage, while non-essential expenses such as subscription services or dining out are considered discretionary.
Take some time to analyze your expenses, particularly those that fall into the non-essential category. Consider how you could cut down your spending by eliminating even a small number of non-essential items. In addition, look for areas where you can save on essential spending by renegotiating interest rates or exploring competitive pricing alternatives.
Finally, list all your monthly income sources including employment earnings, side hustles, annuities, or trust account payments. Compare your total monthly expenses to your total monthly income, making note of where your money is coming from and where it’s going so you can determine how to best allocate your resources towards achieving your specific financial goals.
Need help accounting for your monthly income and expenses? Origin Bank’s Personal Financial Management tool does the work for you, tracking your accounts and spending all in one place. It even categorizes each transaction, making it easier than ever to manage your money and reach your financial goals.
4. Time to Work
You’ve defined your financial goals and you know the current state of your finances. Now it’s time to put your money to work with a measurable, realistic timeline for achieving success.
Let’s say you want to pay off your debt. After examining your budget, you decide you want to pay $12,000 toward your debt. You define your timeframe, giving yourself one year to achieve this goal. This means you will need to dedicate $1,000 each month for the next year in order to hit your goal – can you do it?
If the answer is yes, then you’ve just put your financial goal plan into motion. If the answer is no and this is not financially realistic for you, then start the process over using more attainable numbers to help you achieve success.
If math is not your strong suit, take advantage of Origin’s free financial calculators to help you set realistic goals for paying off debt. For help prioritizing your financial goals, check out this article by Forbes Magazine with guidance on what to focus on first.
5. Monitor and Adjust
Once your plan is in action, it’s important to monitor your progress along the way. Break your goals into bite-sized pieces with clear benchmarks in place so you know when you’ve reached key milestones and can celebrate accordingly.
You’ll also know early-on if you’ve fallen behind and need to make adjustments in order to stay on track. Take time to examine what went wrong so you can prevent it from happening again, readjust and keep moving forward towards your financial goals.
6. It’s Never Too Late
Establishing good financial habits is something anyone can do, any time. If you find yourself behind where you’d like to be financially speaking, don’t be discouraged. With the right tools, motivation and guidance, you can achieve financial success.
Setting financial goals will help you change your mindset and your habits so you’re intentional with every dollar you have, making sure every dollar stretches further. That means you get to do more of the things you want to do and plan for the things you’ll do in the future.
At Origin Bank, our trusted advisors are ready to help you reach your financial goals. Visit any of our locations across Texas, Louisiana and Mississippi to meet with one of our trusted advisors today, or contact us online via our live support chat. Or you can call us toll free day or night at 1-888-292-4037.