Six steps to help you achieve your financial goals.
Achieving your financial objectives in life often requires thoughtful and intentional planning. You may want to buy your first home, take a bucket-list vacation, or fund your children’s college education. To turn these hopes into reality, it’s important to set clear financial goals and then outline a path for how you’ll get there.
Here are six steps to use in building a realistic plan with a strong financial foundation for both today and the years ahead.
1. Start By Making a Budget
Creating a budget—and doing your best to stick to it—is the first step in reaching any financial goal. It’s important to know where your money goes in order to realistically plan for future purchases and investments.
Take a look at your current spending and saving each month. Figure out how much you have available to set aside toward all of your financial goals. Then identify how you can boost your savings rate, whether by scaling back expenses, increasing your earnings in some way, or by using a combination of both.
2. Pay Off High-Interest Debt First
Before you start setting aside extra funds for your goals, analyze how much you’re spending on high-interest debt, such as credit card balances or personal loans. Or if you have a high balance that’s accruing lots of extra interest, consider making this your first priority.
Paying off those balances quickly will save you money on interest and free up extra money to put toward your other goals. It could also improve your credit score to help you qualify for better rates in the future, especially if you’re hoping to finance a major purchase like a new home.
3. Build an Emergency Fund
Another foundationally important part of reaching your financial goals is to make sure you get there. No matter how diligent you are about your spending habits, life is bound to throw a costly curveball at some point. Having an emergency fund on hand allows you to tackle any surprise expenses such as a large medical bill or major car repair without derailing your progress toward your larger, more inspiring financial goals.
If you’re starting from scratch, pick an attainable emergency savings goal such as $500 or $1,000. Then, plan to transfer funds regularly from your checking account into a savings account such as Fifth Third Momentum® Savings, which makes automatic transfers easy to set up. Once you’ve reached that first goal, grow your account even more by aiming for three to six months’ worth of living expenses. That way you’re covered in case you lose your job or have to stop working for another reason.
4. Prioritize Long-Term Retirement Planning
One of your financial goals may involve your dream retirement lifestyle. Maybe you want to buy a second home in a warm climate or travel the world. It could even be something simpler like visiting your out-of-town grandkids every month. Whatever that vision is, planning now can help you achieve it.
Look for tax-advantaged accounts like traditional and Roth IRAs. Your employer may also offer a 401(k), which can help lower your taxable income. You can simplify your investment choices by choosing a fund designed for your target retirement date. Then you just need to save consistently each month. Over the years, those investments should grow significantly. Also remember to take advantage of any employer match contributions to maximize your retirement savings.
5. Choose Short-Term and Mid-Term Goals
Once you have all of those financial safety nets in place, it’s time to set up your financial goals for the fun stuff. This includes things like a vacation, college savings, a wedding, or a down payment for a home.
For future educational expenses, consider tax-advantaged accounts like a 529 savings plan. Shorter-term goals can be housed in a high-yield savings account such as a Fifth Third Relationship Money Market Savings Account, which has no fee if you have a Fifth Third checking account or account balance of $500 or more. Another higher-yield alternative is a Fifth Third certificate of deposit, which also pays higher interest at minimal risk.
6. Evaluate Your Progress Regularly
With these plans in motion, your final step is to regularly check in on your progress. Review your spending habits on a weekly or monthly basis to help you stay on track. Then look at your big picture goals on a monthly or quarterly basis. Look at what’s working and what’s not. And remember, it’s OK to change your plan in order to stay consistent with it.
Finally, perform a review each year to see what you’ve achieved. Revisit your financial goals and make sure you still want to work toward them. Also add in any new goals based on life changes or new interests.