Part of our Build your own financial plan series
5 steps to setting your 2020 financial goals
Think about your (financial) future. Do you want to buy a home with a yard for your dog? Be free of student loan debt? Put the brakes on your credit card swiping habit?
Just like you set goals for your health or your career, setting financial goals helps you prioritize—giving you a clear idea of why you’re saving your hard-earned money. If you’re setting a financial resolution for 2020 (95% of millennials are),1 we’re here to help you build a realistic, doable plan to achieve it.
We’ve outlined a 5-step plan for making financial goals that are specific, meaningful, and doable. Use our fillable financial goals worksheet (PDF) as you work through it.
1. Think about what you want your money to do.
Goals help guide your plan. They don’t have to be set in stone. In fact, you’ll revise them throughout your life. But you need to start somewhere.
Everybody wants to grow their money, of course, but how much, how fast, and for what reasons? That varies from person to person.
The key question: What kind of life do you want now? Later? Look at some examples below.
Basic life and money goals
- Buy a home. Or a different home if you already have one.
- Remodel or repair your house. Examples: get a new roof, finish your basement, update your kitchen.
- Pay down debt, such as loans and credit cards.
- Buy a car.
- Build an emergency fund.
- Pursue hobbies and interests. Take a trip overseas every 3 years, or become a season ticket holder for your favorite team.
- Give annually to a favorite charity.
- Start a new business or expand a current business.
- Get married. (Rings, honeymoon, flowers. It adds up.)
- Plan to have children. Think day care, activities/sports, braces, and summer band camp.
- Help kids with college expenses.
- Leave the workforce to raise a family, care for aging parents, or go back to school.
- Help adult children with expenses, like pay for a wedding or a down payment for a house.
- Leave an inheritance for your loved ones.
- Retire from working full-time. (Or goal may be to work part-time, or to retire early.)
- Move somewhere that has a lower cost of living, or where it’s warmer, or to be closer to family.
- Pay off your mortgage before you retire.
2. Categorize each financial goal as short-, mid- or long-term.
Use this as your guide to help you complete your financial goals worksheet:
- Short-term goals: 6 months to 5 years
- Mid-term goals: 5 to 10 years
- Long-term goals: more than 10 years
3. Set a target date for each financial goal.
Being specific helps, even if you adjust the date over time. If you have a toddler who will be heading to college in 2035, you have a target date for your college savings goal. Want to take a trip across Europe for your 10th wedding anniversary? You know what timeframe you're working toward. Add target dates to your worksheet.
4. Prioritize each financial goal: critical, need, or want.
It helps to prioritize, so if push comes to shove, you know what to fund first. Label each goal on your worksheet: critical, need, or want. Let’s say you have a short-term goal to build up your emergency fund, and it’s “critical.” But another short-term goal is to trade your car, which is running just fine—that's a “want.” If funds become tight one month, you know where to put your money.
5. Know how much you have vs. what you still need to save.
Do you have money in a 401(k), 403(b), or IRA? If so, log those numbers on your worksheet toward a retirement-related goal. Note: Some goals may not have current savings. That’s OK. You have to start somewhere.
If you plan to buy a home in 2 years and you need $15,000 more for a down payment, divide that by 24 months. Then you know to save $625 more per month toward that goal.
12019 Holiday Shopping, Spending, and 2020 Outlook, Principal Well-Being Index, November 2019.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
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