It is hard to get somewhere if you don’t know where you are in the first place. And with personal finance, it’s just as difficult to set financial goals for the future, if you don’t know where your finances are currently.
The best way to measure your financial standing is to figure out your personal net worth. Personal net worth is basically your personal finance bottom line.
After taking into account all of your assets and all of your liabilities, what you end up with is considered your personal net worth. Essentially, a financial goal is a guide or map if you will. A well-structured goal will depends on four major things. A clear definition of what you plan to accomplish. A basic understanding of what resources you’ll need to make it happen.
A written time frame for which you’ll need to make it happen and A simple outlook on how you plan to make your goal fit into your overall budget and life. There are basically four types of personal financial goals you can set in your life.
Number 1. Short-Term Personal Finance Goals These goals typically take less than one year to complete. These goals are usually extremely important, as many of your bigger goals will depend on your success with these short-term goals. These goals are also important because they build moral and increase your financial confidence–suddenly the larger goals don’t seem so impossible. Short-term goals might include reading a finance book, beginning to track your finances with personal finance software or even paying off a credit card.
Number 2. Mid-Term Personal Finance Goals These goals should take less than five years to complete. These goals can relate to your short-term goals. It means; a short-term goal may be paying off your Visa card and a mid-term goal is to have all of your credit cards paid off. Mid-term goals, as well as your larger goals, need to be tracked closely as procrastination can often make mid-term personal finance goals very hard to accomplish.
Number 3. Mid-long-Term Personal Finance Goals These goals should take anywhere from five to 15 years to accomplish. There are people who have become totally debt-free from perusing a mid-long term goal. These goals sometimes evolve or change completely depending on life’s priorities.
And Number 4. Long-Term Personal Finance Goals Long-tem personal finance goals may take sixteen years to a lifetime to accomplish. These are goals that deal with your retirement and leaving an inheritance for your children. Many people set long-term personal finance goals to have a personal net worth of ‘X’ amount of dollars by a certain age.
Long-term goals also change and evolve as people grow and their priorities in life change. You should review and evaluate your long-term financial goals at least once a year–maybe when you do your taxes.
Reward yourself for completing financial goals; smaller goals may be associated with smaller awards, while the completion of larger goals may be rewarded with a family vacation.