Since the United States is one of the richest countries in the world, it is difficult to understand why so many Americans have money problems. The answer seems to be the result of two main factors. The first is poor planning and weak money management habits in areas such as spending and the use of credit. The other factor is extensive advertising, selling efforts, and product availability. Achieving personal financial satisfaction starts with clear financial goals.

TYPES OF FINANCIAL GOALS

Two factors commonly influence your financial aspirations for the future. The first is the time frame in which you would like to achieve your goals. The second is the type of financial need that drives your goals.

TIMING OF GOALS   What would you like to do tomorrow? Believe it or not, that question involves goal setting. Short-term goals are goals to be achieved within the next year or so, such as saving for a vacation or paying off small debts. Intermediate goals have a time frame of two to five years. Long-term goals involve financial plans that are more than five years off, such as retirement savings, money for children’s college educations, or the purchase of a vacation home. Long-term goals should be planned in coordination with short-term and intermediate ones. Setting and achieving short-term goals is the basis for achieving long-term goals. For example, saving for a down payment to buy a house is a short-term goal that can be a foundation for a long-term goal: owning your own home.

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Goal frequency is another ingredient in the financial planning process. Some goals, such as vacations or money for gifts, may be set annually. Other goals, such as a college education, a car, or a house, occur less frequently.

Advice from a Pro

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GOAL-SETTING GUIDELINES FROM CNN/MONEY What are your top three financial objectives? Most people, when asked that question, answer with general goals, such as “achieving financial security.” CNN/Money offers a framework for financial goal setting. First, focus on a few main financial objectives. Make a list of all the things that you’d need to feel secure, happy, or fulfilled. This action will allow you to better achieve what is most important to you. Be ready for conflict. Decide which goals can be delayed or ignored. Paying for an auto repair may take money from your retirement savings. You can use “The Prioritizer” at www.money.com to help you rank the items in order of importance. Next, start working on the financial aspects. Money deposited in savings or investment accounts will start to increase in value. For example, if you put aside the cost of a single candy bar (about 65 cents) each day, invested in a tax-deferred account paying 5 percent a year compounded monthly, those savings would grow to $3,073 in just 10 years and to $16,470 in 30 years. Finally, be prepared for change. Your needs and desires will change as you age. Efforts to identify the financial goals that matter most to you will make sure that you get what you want most. Be sure to: (1) decide which goals take priority and (2) work toward the lesser goals only after the primary ones are being addressed. CNN/Money offers a savings calculator and other financial planning tools at www.money.com

GOALS FOR DIFFERENT FINANCIAL NEEDS   A goal of obtaining increased career training is different from a goal of saving money to pay a semiannual auto insurance premium. Consumable-product goals usually occur on a periodic basis and involve items that are used up relatively quickly, such as food, clothing, and entertainment. Such purchases, if made unwisely, can have a negative effect on your financial situation.

Durable-product goals usually involve infrequently purchased, expensive items such as appliances, cars, and sporting equipment; these consist of tangible items. In contrast, many people overlook intangible-purchase goals. These goals may relate to personal relationships, health, education, and leisure. Goal setting for these life circumstances is also necessary for your overall well-being.

GOAL-SETTING GUIDELINES

An old saying goes, “If you don’t know where you’re going, you might end up somewhere else and not even know it.” Goal setting is central to financial decision making. Your financial goals are the basis for planning, implementing, and measuring the progress of your spending, saving, and investing activities. Exhibit 1-4 offers typical goals and financial activities for various life situations.

Exhibit 1-4   Financial goals and activities for various life situations

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Your financial goals should be stated to take the following factors into account:

1. Financial goals should be realistic. Financial goals should be based on your income and life situation. For example, it is probably not realistic to expect to buy a new car each year if you are a full-time student.
2. Financial goals should be stated in specific, measurable terms. Knowing exactly what your goals are will help you create a plan designed to achieve them. For example, the goal of “Accumulate $5,000 in an investment fund within three years” is a clearer guide to planning than the goal of “Put money into an investment fund.”
3. Financial goals should have a time frame. In the preceding example, the goal is to be achieved in three years. A time frame helps you measure your progress toward your financial goals.
4. Financial goals should indicate the type of action to be taken. Your financial goals are the basis for the various financial activities you will undertake. For example, “Reduce credit card debt” will usually mean decreased use of credit.

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Financial Planning for Life’s Situations

CREATING FINANCIAL GOALS Based on your current situation or expectations for the future, create two financial goals—one short term and one long term—using the following guidelines: <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0073106712/tbl01-0012-01.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>

The Financial Planning for Life’s Situations: Creating Financial Goals box (above) gives you an opportunity to set financial goals.

Sheet 3
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