Finances can be extremely overwhelming. Money is necessary for living our everyday lives, but it can also get us into lots of trouble if we don’t manage it well.
But many of us start our adult lives with little to no personal finance education, or with only a fuzzy idea of how financial goals should be set, pursued, and managed. There’s also the temptation to see money and financial success as an end unto itself, when the holiest and healthiest approach to money is to see it as a means that allows us to provide for our families and serve our communities.
When it comes to managing money well and not seeing money as an end in itself, goals are the key. Long-term financial goals give you a dream to work toward far off in the distance — but equally important are short-term financial goals. These are tangible, up-close road markers that can help you gauge your progress toward those loftier long-term goals.
Accomplishing a short-term goal with finances follows a process that looks similar to accomplishing any other kind of goal: choose a goal, create a plan, and pursue it. But if you are still unsure specifically which short term financial goals will set you up for long-term financial success, here are five principles to consider.
Don’t spend more than you make
It may seem obvious, but it’s the foundation of managing your money well and building wealth and security in the long run: don’t spend more than you make. Spending more than you make is a recipe for debt and financial stagnation.
How do you make sure you aren’t spending more than you make? Create a budget so you know exactly how much money is coming in and going out every single month. Give your income specific assignments for things like groceries, rent, gas and car maintenance, healthcare or medication, etc. You may have some room left over — which is great! You can then decide whether you want to use that extra money to contribute to charitable causes, allow for some discretionary spending, pay off debt, or save.
Cut out excessive or unnecessary spending
It’s always nice to find a little extra wiggle room in your budget. A great way to make even more of that wiggle room is to cut out excessive or unnecessary spending. Make a list of everything you spend money on each month, from basic living expenses like rent, utilities, and groceries, down to the number of times you eat out and the number of subscriptions or streaming services you’re paying for. Carefully evaluate what you need and don’t need, what you’re using or not using, and what is necessary and what is excess. Doing this will make even more room in your budget!
Pay off your smallest debts first
I could write an entire blog post about how becoming debt-free opens doors and creates new possibilities for your financial goals. But I’ll get straight to the point by saying that one great short-term financial goal is to work steadily and aggressively toward paying off whatever debt you have that is currently the smallest.
This is called the debt snowball method. The idea is that the sense of accomplishment and satisfaction you feel when you become free from the smaller debts you owe gives you the motivation — and room in your budget — to attack the larger debts with more force.
Save at least $1000 for an emergency fund
It doesn’t have to be limited to $1000, but saving up an emergency fund will give you peace of mind and a security blanket when it comes to unexpected expenses. As Dave Ramsey says, a crisis turns into an inconvenience when you have an emergency fund! A savings fund just for emergencies also helps you avoid having to go into debt (or deeper into debt) when unexpected expenses come up.
In the long term, you may opt to save several months’ worth of expenses for your emergency fund. But in the short term, $1000 is a great start.
Determine your long term financial goals
And finally, part of forming short-term financial goals is knowing what your long-term financial goals are. These can be more vague and generic because they’re off in the horizon, but having overarching goals helps steer your short-term goals and motivates you to take action. Long-term goals may include becoming debt-free, paying off a car lease in full, saving for a down payment for a house, or investing.
Finances can be intimidating to navigate, but setting and working toward clear goals in the long and short term will give you focus — and a sense of accomplishment when you hit those goals both now and in the future.