What Are Good Financial Goals to Improve Your Wealth?

What are good financial goals for short-term and longer-term personal budgeting? Short-term goals are useful because it’s nice to experience quick success. But longer-term goals are vital if you want to make significant changes to your financial wellbeing.

Also, goals can relate to two different aspects:

What you want to achieve (for example, to become debt free)
The habits you need to follow to get there (for example, to set a budget each month)

There are general financial goals which would benefit just about anyone – and we’ll look at those. But you can tweak those goals according to what you want from life. Money brings you more freedom of choice as to how you spend your time.

Live Within Your Means

The most important money goal is to live within your means. Everything follows from this. In the novel ‘David Copperfield’ written by Charles Dickens in 1850, Mr Micawber says, ‘Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty-pound ought and six, result misery’.

Putting this into cents (or modern-day pence):

Income 2000
Expenditure 1950
Result 50 saved (happiness)

Income 2000
Expenditure 2050
Result 50 overspent (misery)

Don't forget about income tax. Either use your take-home pay for your income (the amount actually paid into your bank), or include tax in your expenditure. In addition, there are three key points.

First, your spending should generally be less than your take-home income.
Second, if you manage to save money each month, you can build savings.
Third, if you do overspend (for example because you are paying for a house repair or a holiday), you must have savings to cover the overspend. Borrowing money is not the solution.

So, Mr Micawber would not have faced misery if he had built up his savings. Unfortunately, he had not.

What are Good Financial Goals if You Have Credit Card Debt?

If you owe money on credit card debts, or auto loans – any personal loan except a house mortgage – a good financial goal is to repay that debt as soon as possible. When you have debt, you are using today’s income to pay for something you purchased in the past. But when you have repaid the debt, you can apply any savings to your future dreams.

Repaying debt sounds a good idea, but you need an action plan. One of the best known is the snowball method where you list out your various debts then do your utmost to pay off the smallest one. Once you’ve achieved that, you tackle the next smallest.

What are Good Financial Goals for Savings?

The most important savings goal is to get into the habit of saving some money every month, even if it's a small amount. Once you've done this, you can set higher targets. Mr Micawber had in mind to save 50 (modern-day) pence from his 20-pound income. That’s the equivalent of 2.5 pence out of every pound: a savings rate of 2.5%.

Any saving is good, but a better target would be at least 10% and, if possible, 20%.

10% out of every $1,000 dollar income would be $100 into savings
20% would be $200

You will find various budgeting books recommending different amounts. For example, ‘The Richest Man In Babylon’ suggests 10% (1 gold piece out of every 10), whereas ‘All Your Worth’ goes for 20%. You can set your own savings goal but the key, as Mr Micawber lamented, is to ensure you’re building a savings habit.

Make a Budget for the Month Ahead

One of the key habits to help you live within your means, pay down debt and save money for the future is to create a budget for each month before the month starts. There are a few different ways you can do this, but they follow the same broad pattern.

Estimate your likely income (after tax and other deductions) for next month
List spending items where you cannot control the amount (like your rent or mortgage)
Deduct this spending from your income to see how much is left to give your ‘money available’
Decide how much you’d like to put into your savings accounts
Deduct this amount from your money available to give ‘spending money’
Allocate that spending money to budget categories like food, transport, clothes, cinema etc.

Making a budget each month is an example of a good financial habit. When you set your financial goals, some of them may be to form good habits. Other goals could be specific money targets, such as repaying a set amount of debt or a savings target to buy a car or a holiday.

Track Your Spending

Tracking your spending is another good money habit. There’s little point creating a budget unless you use it as an active tool in your money management.

Two important ways to do this are:

Tracking your spending during the month. I’ve found this to be a very valuable exercise. It makes me more mindful of purchasing habits, and also helps me to spot any questionable bank transactions.
Reviewing your spending at the end of each month. This is where you see how close you came to your spending and savings targets. A budget is only an estimate, and there will most likely be unexpected events. You can use this review as stage one of setting your budget for the next month.

What are Good Financial Goals When You’re Starting Out?

When you’re first starting out with personal budgeting, it can seem like a lot of work – and your long-term goals may be on the distant horizon. Short-term goals are a great idea.

Tracking your spending is an excellent starting point. For example, you could set a goal to list out your previous day’s spending that evening or the next day. If you use cash, and various bank accounts and several cards, make sure to cover them all. Just listing down your spending gets you thinking about how to keep your finances simple and on track.