How to Set Financial Goals That Actually Make You Happy (With Examples)

Saving money on set financial goals that does not have to be complicated. We rounded up the essentials so you can spend less and skip the guesswork.

Key Takeaways

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• When it comes to money management, it seems like there are dozens of different objectives.

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This content is for educational purposes only and does not constitute financial advice, advisory, or brokerage services. We may earn compensation from some links on this page. Learn more.

When it comes to money management, it seems like there are dozens of different objectives. Saving for retirement, college, a house, a car, a vacation , and maybe even enjoying life once in a while.

All of these things are key. But where should you start? How do you identify the most efficient path? And most importantly, what’s actually going to bring you happiness?

This guide on how to set financial goals was designed to help you answer these and other key financial planning questions.

Let’s get started!

Step #1: Get Accurate Data

One of The Ways To Wealth’s core principles is to think of your personal finances as a business. This allows you to get an accurate, objective view of your financial past, present and future. 

So Step #1 is all about taking a clear, honest look at your current financial situation. 

The quickest way to do this is to create a net worth statement that lays out:

1. Your assets (what you own).
2. Your liabilities (what you owe).

For now, the goal is simply to list both your assets and liabilities.

Action: Complete this net worth statement.

Tips and recommended resources:

• This step is about where you are today, not any mistakes of the past. So there’s no need to judge yourself or criticize past decisions.
• Omit items like furniture, personal jewelry, collectibles, household goods and clothing from your net worth, unless they have significant value and you’re willing to sell them. 
• There are numerous quality financial tracking apps that can help you get this information, as well as automatically update it.

Step #2: Understand your Financial Needs

When it comes to financial goals, you can do just about anything. But you can’t do everything. A solid relationship with money means focusing on the goals that provide you the most benefit. 

So, what’s most key to you? Is it getting out of debt? Becoming financially responsible? Building an emergency fund? Traveling? Saving money?

A good beginner’s framework for setting financial goals is the first three steps of Dave Ramsey’s Baby Steps. 

These steps are:

1. Build a $1,000 emergency fund.
2. Pay off all debt besides your home.
3. Save 3-6 months of expenses.

It’s a simple framework that lets you you identify how to manage your money. Once you have a $1,000 emergency fund, you then pay off your debt (besides your house). Once that non-mortgage debt is paid off, you save for a 3-6 month emergency fund. 

The idea is that you’re only focused on one goal at a time. 

Keep in mind that it’s simple to poke holes in Ramsey’s baby steps. 

For example, is it really best for you to pay off all debt, even a low-interest student loan, instead of focusing on just high-interest debt? 

If you’re not sure if this path is right for you, check out our post on the Baby Steps framework, which goes into the pros and cons in more detail. 

Step #3: Think Outside the Spreadsheet

Ramit Sethi, author of the bestselling book I Will Teach You To Be Rich, frequently uses the phrase “live outside the spreadsheet.” 

In other words, he’s saying that while spreadsheets should be used as a guidepost they shouldn’t dictate everything in your life and aren’t something to obsess over.

It’s for this reason that I don’t love the term “financial goal-setting.” While it’s key to identify basic financial needs, as we did above, when the term financial is added in front of goals, it tends to get people thinking of only what looks best on a spreadsheet.

The better approach is to set overall life goals first, then reverse engineer what changes you’d have to make within your finances to achieve those goals.

In the financial planning profession, there is a movement toward this type of thinking called life planning. 

Developed by George Kinder, life planning is summarized as:

“Life planning focuses on the human side of financial planning. In life planning, we discover a client’s deepest and most profound goals through a process of structured and non-judgmental inquiry. Then, using a mix of professional and advanced relationship skills, we inspire clients to pursue their aspirations, discuss and resolve obstacles, create a concrete financial plan, and provide ongoing guidance as clients accomplish their objectives.”

The foundation of life planning is centered around answering three key questions.

Life Planning Question #1

Imagine you’re financially secure and have enough money to take care of your needs, both now and in the future. How would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete and richly yours.

Life Planning Question #2

Now imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life, and if so, how will you do it? (Note that this question does not assume unlimited funds, so answer based on your current level of earnings.)

Life Planning Question #3

Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself what you missed. Who did you not get to be? What did you not get to do?

Your answers to these questions can help you identify what a actually matters to you. From there, you can start thinking about how to use money as a tool to live the life you want. That’s the opposite of how most people think of money, seeing it as the goal in and of itself.

Step #4: Set Financial Goals For The Life You Actually Want

If you took the time to answer the questions above (in Step #3), what you should have noticed is that the questions get progressively harder. It’s simple to think of what you’d do if money were no object, but it’s hard to think about what you regret not doing.

What does this have to do with financial goals? Understanding your priorities in life empowers you to make financial choices that reflect these priorities. 

Of course, some priorities should be basic. Examples include building an emergency fund, budgeting for your first apartment, saving for the down payment on a house or starting to build an investment portfolio.

But, then again, your priorities need to be your own. You shouldn’t purchase a home because everyone says that’s the right thing to do. Instead, do it because it reflects your priorities (e.g., because you want to raise your family in a stable environment).

And conversely, don’t do it if you have different priorities!

Clarify Your Financial Priorities

Building a list of your priorities is an key step in creating your financial plan.

Reviewing your answers above, aim to come up with your number one priority, as well as a list of the top five.

This doesn’t have to be formal , just jot them down as in the example below:

Final Thoughts

Before you check out, double-check set financial goals that against current offers and any coupons you can stack. Small habits like this add up to real savings over a year.

Originally published at thewaystowealth.com.