How to Set Realistic Financial Goals

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Did you know that one of the main reasons why New Year’s Resolutions fail so often is because of unrealistic goals? If you want to lose weight, experts recommend aiming to lose 1-2 pounds a week, but when most people set a weight loss goal, they set a final goal with no time-bound. They want to lose 20 pounds… not realizing a realistic time period for that loss is 10-20 weeks, so it’s no wonder they give up after four!

Although I don’t have specific tips for weight loss goals, I am going to share different ways to set realistic financial goals. Much like weight loss, setting realistic financial goals can help raise the odds of achieving them.

Don’t Compare Yourself to Others

First things first, do not compare yourself to anyone else. Social media makes it easy to compare your life to your friend’s lives and this comparison can hurt your chances of success. If you see your friends living the high life while you’re trying to save for a new car or house, it’s hard to stay on track. More broadly, don’t compare yourself to others within your age group. There’s more than enough commentary on the web and elsewhere about where you should be with your finances, and while it’s well-intended, it may not be relevant to your situation.

The best thing to do is to work with what you have and gradually improve your finances over time. Just as you can’t lose 20 pounds in one week, you can’t double your net worth in just one month. Looking at others who are more successful may provide a boost of inspiration, but it can also leave you discouraged if you don’t find success quickly.

Set Realistic Savings Goals

Setting a savings goal is about implementing smart principles – being specific, measurable, attainable, relevant, and timely. When you set a savings goal, it’s often to save a certain amount by a specific date.

For example, you may want to save $15,000 for a down payment on a house in five years. To set an attainable goal, you must look at your budget to see if it can support saving $250 a month towards that goal. By reviewing where you’re spending your money now and how much of it can be adjusted, you’ll know whether saving $250 a month is actually realistic for you. If it isn’t realistic, you can always adjust the amount or the time frame.

Close-up of someone making a budget and using a calculator.

It’s also important to project into the future. Five years is a long time, and if you’re renting, you’ll probably move more than once. By knowing this five-year goal, adjust your decisions to support that goal. Move to a cheaper area where you pay less in rent, putting those savings towards your house down payment goal.

Set Goals That Are Right for You

In finances, some goals have higher priority over others depending on your situation. Saving for a house is great, but there are other goals that may need to be met before buying a house.

A prime example is an emergency fund. Set a goal to have at least 30 day’s living expenses in that account. When you hit a month, set a goal of saving up three months of expenses. More is better, but you may also need to begin focusing on other savings goals as well. This gives you practice in setting realistic goals and confidence in achieving them.

Another goal should be paying off debt. The more you can pay off, the more room you’ll have in your budget for other savings goals too.

The only exception to this is retirement savings. Since these can be done concurrently, such as by making contributions to an employer-sponsored retirement plan, there’s no need to do them in order.

Couple reviewing finances and doing financial planning.

Set Up a Workable Budget

Saving is about finding room in your budget so that you aren’t spending every penny you earn. The operative word here is workable. That means it needs to flow smoothly within your current income and expense levels.

A budget is a process and not an event. Thus, you’ll need to gradually adapt your finances to fit within your budget. At first, it may be a struggle – like going on a diet, but as you implement changes gradually, you’ll become more comfortable with the arrangement. The ultimate goal of a budget is to be able to live within your income while creating extra room to achieve long-term goals.

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