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A dream without a plan is just a wish. To make sure you can achieve the big dreams and desires you have in life, it’s important to turn them into attainable financial goals. Then you must prioritize your goals and consistently track your progress toward them.
The following steps will help you define and prioritize your financial goals so you can make your dreams a reality:
1. Decide what you want
Your life goals become financial ones because they generally require money. But when you contemplate what you want to do or accomplish, don’t get lost in the sea of day-to-day expenses, debt and income. Instead, become crystal clear about what you actually want.
Don’t think about whether your dream is possible — at least not yet. For instance, you may want to retire early or buy a home or pay for your child’s college education or all of the above. These are all great dreams. Write them all down, trying to be as specific as possible about what you want and when you want to accomplish it.
2. Turn your dreams into goals
The next step is to turn your dreams into goals you can work toward. For example, say you want to buy a home in three years. To turn this dream into a concrete goal, break down the numbers:
- How much will it cost? Let’s say the type of home you like will cost $200,000.
- How much will you need for a down payment? Let’s say you want to put 15% down, or $30,000.
- How much do you already have saved? Let’s say you have $5,000.
The difference between your savings and the down payment amount you will need is your financial goal. Now, you can replace your dream with a goal: I want to save $25,000 for a down payment on a new home in three years.
Write down your financial goal. This is important; if it’s not written down, it’s just a wish. Do this for each of your dreams. For more complex financial goals or calculations, you may want to work with a financial advisor.
3. Prioritize your goals
Once you have a list of your goals, you have to decide which to focus on first. This part isn’t easy because goals sometimes collide with one another. To prioritize your financial goals, rank them in order of importance and based on the time horizon. Think about what’s happening in the next three years, the next five to seven years and then beyond that. Also think about your goals in terms of how critical they are to your sense of well-being later in life. If you are struggling to prioritize, ask yourself: Which goal will cause more harm if I defer it to a later time? Which goal will benefit more people around me?
Here’s an example: Should I save for college for my child or for my own retirement? It’s a tough question because parents want to take care of their children. But if you don’t have adequate assets and savings by the time you retire, who will take care of you? Your children can take out student loans, work part time and try to get scholarship money for their college expenses. You can’t do that to provide for your needs during retirement. In this case, you’d need to prioritize retirement savings over college savings.
However, you’ll likely need to focus on multiple goals at once. That means you may have to juggle saving for a down payment, retirement and college all at the same time. It may also mean you need to adjust certain goals based on your situation. For instance, if you want to buy a home and save for retirement and college, perhaps you should consider a less expensive home.
4. Track your progress
Have a regular money date with yourself, your significant other or a professional who will take an objective look at your finances. At each meeting, discuss how much money you made and saved, whether there are any changes to your debt and whether any unusual expenses are coming up. Reviewing these line items will help you stay focused on your priorities and track your progress. I recommend setting weekly money dates for the weekend — say, Sunday afternoon — so it gives you a progress report to close out the week and sets the stage for the next week.
The most important part of the money date is having a partner who will hold you accountable and help keep you on track toward your goals. Remember, you get what you focus on. Once you figure out what you want to do and how you will make it possible, your money dates will help keep the momentum going.
This article also appears on Nasdaq.