How to set and achieve financial goals: 7 tips

Whether you want to pay off debt, increase your income or save for a down payment, setting financial goals can help you plan for the life you want. But when it comes to financial planning, knowing where to start may seem overwhelming. The good news is that there are steps you can take to manage your money and reach your milestones.

Read on to learn how to set financial goals and the strategies that could help you achieve them. 

Key takeaways

• Financial goals are the money milestones you set to reach your wants and needs.

• A money management strategy is typically required in order to reach a financial goal.

• Financial goals can be short term, like saving for a family vacation, or they can be long term, like saving for retirement. 

• Using goal-setting guidelines—like the SMART formula—could help you break down large financial goals into smaller tasks.

Financial goals are the money milestones you set to reach your wants and needs. They can be great ways to orient yourself toward saving for the future. 

However, everyone’s financial situation is different. Your financial goals may depend on your current debt, cash flow or lifestyle. And your short-, mid- and long-term plans could also influence how you save and invest your money.

Here are some common examples of financial goals at every stage of life:

According to the Consumer Financial Protection Bureau (CFPB), short-term goals may take less than five years to achieve. They may include goals like:

• Creating a budget: Calculating your net income, living expenses and disposable income can help you understand your current financial situation and prioritize your spending. The 50-20-30 rule is a popular budgeting method that recommends using 50% of your income for expenses, 20% for savings and 30% for wants.

• Improving financial literacy: Setting financial goals may feel intimidating at first, but there are online resources that can help you learn about financial concepts. Knowing how to manage money can help you make decisions that support your long-term goals. 

• Saving for a vacation: Financial goals aren’t only for needs, after all. Saving for vacation ahead of time can also save you the headache of money worries once you get there.

It may take five to 10 years to reach a mid-term financial goal. These goals may include:

• Paying off debt: If a chunk of your budget is going to high-interest debt payments each month, you won’t have as much money to put toward your saving or investing goals. The good news is that there are strategies you could use to pay off credit card debt or student loans so you can free up your finances.

• Improving your credit scores: Your credit scores are instrumental to your financial foundation because lenders could use them to determine your creditworthiness. They can affect your eligibility for loans or credit cards and the interest rates they come with.

• Building an emergency fund: An emergency fund is a dedicated savings account that you can use to cover unexpected expenses without dipping into your other accounts. The Fed recommends keeping at least three months of expenses in this fund.

Long-term goals, such as the following, may take more than a decade to accomplish:

• Saving for a down payment on a house: Buying a home is a great financial goal, but it typically requires saving for a down payment. It’s also important to consider how closing costs and private mortgage insurance payments could affect your down payment and home buying budget. 

• Saving for retirement: There are different types of retirement funds—like traditional and Roth IRAs—that could help you reach your long-term financial goals. You could also see if your employer offers plans like 401(k)s or 403(b)s. Some companies even offer 401(k) matches as a fringe benefit.

• Saving for a child’s college education: If you have kids, saving for their future education may be a priority. Some people use 529 plans to prepare for college costs.

Deciding on a financial goal is great, but that’s only half the battle. Knowing how to use goal-setting strategies can help you achieve your monetary milestones. Some experts recommend the SMART guidelines for setting financial goals. These guidelines may help you break down large goals into smaller, easy-to-track tasks. 

SMART stands for: 

• Specific: Specify the tasks you need to complete to reach your goal.

• Measurable: Decide how you’ll track your progress.

• Attainable: Is the timeline doable? Does any part of the goal feel overwhelming? It’s important to ask questions, evaluate your progress and set realistic expectations. 

• Relevant: Consider whether the goal aligns with your values and your desires for the future.

• Time-bound: You could set timelines for reaching your goals and break down large goals into smaller tasks that have their own deadlines.

When you have a financial goal in mind, it’s important to consider the timeline needed to achieve it. Prioritizing your goals can help you chart a time frame and develop an investment strategy that you can balance with your current lifestyle. 

If you’re looking to improve your financial health, here are some steps you may want to take:

Tracking your expenses will help you determine your current cost of living and the amount of money you can realistically use for savings and debt payments.

It may be helpful to prioritize certain financial goals—like building an emergency fund—over less-pressing goals, such as saving for a vacation. Starting with smaller, more achievable goals—like paying off your smallest debt—can free up resources and help you fund your larger goals.

Direct deposits or recurring transfers can make it easy to save and invest money. Automating contributions can reduce the temptation to spend these funds on other things.

It could be helpful to dedicate different accounts for different goals. This strategy could organize your finances so you can track your progress.

A high-yield savings account or a money market account (MMA) may help you save for your near-term goals. These types of accounts could give your money some padding from inflation while keeping your assets liquid. 

Money market and savings accounts could also help you save for mid-term goals. You could also consider a certificate of deposit (CD). Many CDs require funds to remain in the account until the account’s maturity date. If you withdraw money early, you may have to pay a penalty. However, some CDs may not have early withdrawal fees.

Retirement accounts—like 401(k)s and IRAs—can help you financially prepare for the future. These accounts are meant for long-term investing. If you need to withdraw money early, you could face a penalty. Again, if your employer matches your contributions, using them can help you have more savings for retirement.

You don’t have to become an expert overnight. A certified financial planner can work with you to create savings and investment strategies tailored to your goals.

Having timelines for short-, mid- and long-term goals can help you track your progress and shift priorities as needed. Scheduling regular check-ins can help you see where you stand and help you figure out next steps.

Setting a financial goal is a step toward financial security and success. As you work toward your monetary targets, remember to track your progress and adjust your plans as circumstances change. 

If building your credit score is on your list of financial goals, consider CreditWise from Capital One. With CreditWise, you can monitor your VantageScore® 3.0 credit score and access your TransUnion® credit report at any time. And with the CreditWise Simulator, you can explore the potential impact of your financial decisions before you even make them. CreditWise is free for everyone, and using it won’t affect your credit scores.

And as you gain financial awareness, you may want to explore new options for managing your money. You can compare credit cards to find one that may support your financial goals.