How to Set Financial Goals 

The key to setting effective financial goals is figuring out what you want to achieve with your money and creating a plan to make it happen. You may have some goals that require less time to achieve, such as planning a vacation, and others that require more careful, long-term planning, like saving for retirement. Once you identify your priorities, financial capacity and timeline, you can create a plan and schedule to achieve your goals.

Let's walk through the ins and outs of setting clear and achievable financial goals so you can make the most of your savings.

Identify your priorities

Before setting financial goals, take some time to reflect on what matters most to you. Think about what you need now and what you want for the future. Are you focused on paying off debt for peace of mind? Do you want to save for experiences, like travel? Or perhaps you're planning for a milestone, like saving up for an engagement ring. Your financial goals often reflect the place you’re at in your life, so you may want to revisit them periodically.

Assess your financial situation

Once you’ve identified your priorities, take a close look at your finances. Review your bank account, income, expenses and savings to understand your financial standing. Consider your monthly cash flow and identify any spending patterns that could influence your savings strategy. This can be a good time to develop a budget if you don’t follow one already.

Here are some key steps you may want to take:

• Review financial documents: Analyze bank statements, credit card bills and loan balances
• Track cash flow: Calculate how much you earn and spend each month
• Identify areas to cut back: Look for unnecessary expenses, like unused subscriptions or impulse buys
• Outline next steps: Review how you plan on achieving these goals and adjust as needed

Establish SMART goals

SMART stands for Specific, Measurable, Achievable, Relevant and Time-bound.

Using the SMART framework ensures that your goals are clear and actionable. For example, instead of saying, “I want to save money,” a SMART goal would be, “I want to save $2,000 in 6 months for an emergency fund.” This goal is specific (save $2,000), measurable (you can track progress), achievable (requires you to save about $330 per month), relevant (for financial security) and time-bound (6 months).

The SMART framework helps break down larger goals into smaller, more manageable steps, which may make it easier to stay focused and motivated. It also allows you to track progress and adjust as needed to stay on course.

Have a way to track progress toward your financial goals

Tracking your progress is essential to staying on course, whether you use a budgeting app, a spreadsheet or a notebook.

Regularly checking your progress can help you stay motivated. It can also help to celebrate small wins along the way — hitting a savings milestone or paying off a debt can be a big accomplishment. And remember, it’s important to understand that setbacks can happen and to have a plan in place to adjust if they do.

With the basics in place, let’s look at the specifics of setting short-, medium- and long-term financial goals.

Short-term goals

Short-term financial goals typically take less than a year to achieve. These goals often help you build a foundation for longer-term financial security while giving you quick wins to stay motivated. Some common short-term goals include:

• Building an emergency fund: An emergency fund is a safety net for unexpected expenses. Consider setting aside a small amount each month in a savings account to put toward emergencies.
• Paying off debt: Becoming debt-free can position you to achieve your medium- and long-term goals. Consider strategies like the debt snowball or debt avalanche to stay organized. You may also consider consolidating or refinancing options to potentially lower interest rates, which could help you pay off debt faster.
• Saving for a vacation: Saving money for a vacation can involve creating a dedicated savings account for travel and setting a timeline to fund it. You may want to break down the total estimated cost of your vacation and save a fixed amount each month to reach your goal.

Medium-term goals

Medium-term goals typically take 1 to 5 years to achieve and are often stepping stones toward long-term financial stability. Common medium-term goals include:

• Saving for a car: Whether it's your first car or an upgrade, you might start by researching costs and setting a realistic savings target. Consider opening a certificate of deposit (CD) to grow your funds faster. Factor in additional costs like insurance, taxes and maintenance to ensure your savings goal is thorough.
• Saving for a down payment on a home: A home is a significant investment, and saving for a down payment requires planning. This goal can involve determining how much you need based on your desired home price and setting monthly savings goals. Keep an eye on market trends and mortgage rates, as they could impact your goal.
• Paying off larger debt: If your goal is to pay off student loans or other significant debts, it can help to create a plan to tackle them over the next few years. Look into refinancing options to see if they can lower your interest rate. Consider making extra payments whenever possible to reduce your debt faster and avoid accumulating more.
• Starting a business: It can take years to start or build a business. Your goals might involve starting a business and growing it a certain amount each year.

Long-term goals

Long-term financial goals typically take more than 5 years to achieve. These goals often revolve around major life milestones and require consistent effort over time. Long-term goals can include:

• Planning for retirement: Saving for retirement can take decades. This goal can involve contributing regularly to a 401(k) or IRA and taking advantage of employer matching (if available).
• Paying off your home: Owning your home outright can be a step toward financial freedom. Consider strategies like making extra payments to pay off your mortgage ahead of schedule. Refinancing to a shorter loan term could also help you pay off your mortgage faster and may help you save on interest.
• Saving for a child’s education: Planning a child’s education can be a long-term goal. Look into options like 529 plans to maximize your savings.

Financial goals and your future

Setting financial goals can motivate you to make the most of your earnings. Having a reason to save lets you prepare for your future with a specific vision in mind.

If you’re not sure how to best tackle your goals, you may want to speak with a financial professional to help make a plan that works best for you. Once you make a plan, stick to it, but maintain some flexibility in case your priorities suddenly shift.

Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.