Conquer Your Personal Finances: 2 Quick & Easy Tips (Part Two)
Please note: This post is the second in a multi-part series that provides quick and easy financial tips for individuals and small business owners to help them succeed financially.
In the first post of this series, Conquer Your Personal Finances: 2 Quick & Easy Tips we talked about why it’s important to care about your personal finances. (As a reminder, it’s because time is the key to building wealth.) And then we discussed a few quick and easy steps you can take to start getting your finances in order. These included making a list of your expenses (i.e., creating a budget) and then separating them into needs and wants so you can start putting some wants money towards worthy financial goals.
But What Is a “Worthy” Financial Goal Anyway?
A worthy (aka sensible) financial goal can be either a need or a want. In fact, you can tack on desires as a category here too. Whereas a want might be a less expensive indulgence, a desire would be a longer-term, more deliberate goal that you want to work towards. It’s okay to include wants and desires in addition to needs when you’re deciding on your financial goals.
One tip is to use the SMART method as a guide to help you define your goals. The acronym will remind you to make sure your financial goals are Specific, Measurable, Achievable, Realistic, and Timed (or Timely).
Some examples of worthy financial goals include starting a retirement fund, putting away funds for college or to start a business, opening an investment account, and even saving money for a dream vacation. For many people, there’s a desire to work towards multiple financial goals simultaneously. This is normal and fine.
Quick Tip #1: Organize Your Financial Goals
Once you’ve identified some goals, you’ll want to figure out how long it will take you to save enough money for each of them (the cost will determine the time-frame). Start by dividing each of your financial goals into short- (0-12 months), mid- (1-5 years), and long- (5+ years) term buckets. Then – again – check to make sure that each of your financial goals are Specific, Measurable, Achievable, Realistic, and Timed (or Timely).
Here’s a quick example: Say you’ve decided that opening an investment account is a financial goal of yours. To reach the goal you plan to save $700 in seven months by putting away $100 a month.
Ask yourself: Is this goal specific? Yes. I know how much I need to save every month to reach my goal. Is this goal measurable? Yes. I can easily monitor how much I’m managing to save each month and adjust things as needed. Is this goal achievable? Yes. I know I will be able to save $100 a month from my paycheck to reach my goal because I have already determined where this money is being diverted from for this purpose. Is this goal realistic? Yes. I have an extra $100 from my paycheck every month that I know I can put away. Is this goal timed? Yes. I am going to give myself seven months to accumulate the money I need.
Quick Tip #2: Be Mindful of Your Spending
Beyond setting SMART financial goals, another tip when it comes to being in control of your finances is to be mindful when it comes to spending. In other words, stay consistent and committed to the goals you have set.
This doesn’t mean you can’t have any fun; it just means that you should consistently watch what you’re spending to ensure you can meet the goals you've established. (In other words, don’t create a budget and then treat it like a New Year’s resolution that you only stick with for a couple weeks and then let lapse.)
If you’re a small business owner, this is even more important. You must keep track of both your business and personal cash flows separately. To do this set up a separate bank account for your business. You might even go as far as to create separate accounts for your income, expenses, taxes, and savings (just like grandma’s ol’ envelope system!) The more organized you are, the better you’ll be able to see and, therefore, control your spending, which will assist you in reaching all of your financial goals, both personally and for the business.
A Final Word From Tuesday Brooks Founder of AJOY
So now you know all about the SMART method and how this can help you to define worthy financial goals. Great. And remember that if you’re pursuing sensible financial goals, this is essentially the same as getting your personal finances in order so congratulations on that! You’re making significant progress. Continue to keep tabs on your spending – don’t let it get out of control – and you’ll start reaping the rewards as you begin reaching your goals (and having fun along the way).
For more helpful and easy to understand financial guidance, be sure to check back for more quick tips next week. Until then, have a great week!