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Many of us focus on what is directly in front of us. With so much focus on the near-term, forgetting about the long-term is easy to do. However, when it comes to personal finance, focusing on your long-term goals is the most impactful thing you can do to get off the hamster wheel. Today, I am going to cover five long-term financial goals that you should consider working towards and some actionable steps you can take to get there.
What Is A Financial Goal?
A financial goal is a set target for how you’ll save, earn, and spend money in the future. Everyone will have unique financial goals depending on their priorities.
While I will focus on long-term financial goals, I want to outline the different types of financial goals briefly.
Short-Term Financial Goals
Short-term goals can be typically be accomplished in under a year. Common goals include paying for a vacation, sticking to a budget, cutting spending, etc.
While these goals are more straightforward to achieve because of the timeframe, they also typically have the smallest impact on your financial future.
Medium-Term Financial Goals
Medium-term financial goals are a bit longer-term, often taking several years to reach. Common medium-term goals include paying off credit card debt, purchasing a car, saving a down-payment for a house, or building an ample emergency fund.
While you can accomplish each of these goals fairly quickly if prioritized, usually, these goals aren’t met overnight. For example, a 3-6 month emergency fund often isn’t built in a matter of months but rather a matter of years.
Medium-term financial goals can be a little more challenging to reach than short-term goals, but they can materially lower your financial stress and show you that you’re making progress with your money.
Long-Term Financial Goals
Long-term financial goals are often not measured in years but rather decades. These are the most challenging goals to achieve because it is much easier to focus on the short-term rather than the long-term.
While most people have different goals in the short- to medium-term, most have similar long-term objectives. So, let’s dive in and cover five long-term financial goals that should be on your radar!
1. Retirement
The most prominent long-term financial goal on everyone’s mind is early retirement. While many people love their jobs, myself included, let’s face it. A job is a job. If you want to get out of the rat race, the key is setting aside money for retirement every single month.
I read an article recently about how many years it will take to retire depending on your savings rate. While the math is sobering, the article demonstrates why it’s not about what you make but what you keep.
While retirement may seem a long way off in your 20s and 30s, starting at a young age is the biggest driver of being able to retire.
2. Paying off Mortgage Debt
Another common long-term goal is paying off a mortgage. Particularly if you’re on a 30-year mortgage, it can seem like paying off your mortgage is a long way off.
While I am a proponent of not pre-paying your mortgage (and instead investing more), there is a psychological benefit to paying off your mortgage early. The other benefit of paying off a mortgage is that you can drastically increase your monthly cash flow, giving you less financial stress on a month-to-month basis.
3. Saving for College Education
For many young adults with children, a common goal is to put children through college. While college does cost a small fortune, this goal is achievable if you start early enough.
Starting early gives you the best chance of reaching this goal, so don’t wait until your kids are approaching college age.
4. Financial Independence
Next, I want to mention an increasingly popular long-term financial goal: reaching financial independence. Simply put, financial independence means having enough passive income to cover your living expenses.
So, if your living expenses are $4,000/month, your goal would be to build $4,000/month in passive income.
Financial independence doesn’t necessarily mean that you won’t work anymore; it just means you have the choice not to work if you don’t want to.
Personally, in addition to retiring, financial independence is one of my long-term goals. While I love my job, all jobs in which you rely on someone else for your income involve some degree of financial risk. My goal is to get to a point where I am reliant on streams I have created to pay the bills.
5. Early Retirement
Finally, lots of people dream of early retirement. Regular retirement typically requires saving ~20% of your income. But for many, they want to retire even sooner. While this is a lofty goal, it is achievable if you increase your savings rate.
Early retirement for some means retiring when they’re 60, while for others, it’s as young as 40. Whatever your goal, early retirement gives you the option to work/not work, so figure out what savings rate makes sense for you.
Write Down Your Long-Term Financial Goals
Once you’ve decided which (or all) of these long-term financial goals are important to you, the next step is putting your goals into action.
To put your goals into action, start by writing them down. Putting your goals in writing makes them much easier to attain.
As with all goals, your financial goals should be SMART.
- Specific
- Measurable
- Achievable
- Relevant
- Time-Bound
Let’s cover each of these briefly.
First, specific goals should be specific. Don’t just say, “I want to be able to retire.” Say, “I want to retire by age 62 with $4,000 per month in income.” The great thing about financial goals is that they are easy to measure. There are countless resources to tell you if you’re on track to reach your financial goals (such as Personal Capital).
Next, your goal should be achievable. For most, a 50% savings rate is not feasible unless your expenses are super low, and your income is relatively high. If, however, your savings rate is already 15%, increasing that to 20% is an achievable goal.
The goal should be relevant; in other words, it should align with your goals and values when it comes to money.
Finally, your long-term financial goal should be time-bound. Set a date by which you want to achieve your long-term financial goal.
Prioritize Your Long-Term Financial Goals
As you write down your long-term financial goals and make them SMART, also be sure to prioritize them.
For example, maybe sending your kids to college is more important to you than retiring early. Whatever your goals, make them your financial priorities.
Of course, in prioritizing your goals, certain near-term expenses such as food and shelter come first. And before you focus on your long-term goals, I suggest building an emergency fund to cover six months of expenses. If you don’t have an emergency fund and hit a speedbump, your long-term goals will be out the window. But once you meet these near-term hurdles, start saving for the long-term.
Take Action
Once you’ve mapped out your long-term financial goals, made them SMART, and prioritized them, your final step is to DO THE THING.
Consistent daily action is the way to reach your financial goals. There are countless tools and resources to help you take action. Here are just a few:
- Pick up a book on achieving financial freedom
- Learn where to save & invest first
- Consciously focus on your goals by learning how to budget
- Build more income with these seven passive income ideas
- Track your progress with a tool like Personal Capital
Everyone has different long-term financial goals. Taking action towards yours can put you on the path to financial success, but only if you consistently work towards your goals. It is not easy, but if you do stay the course, you’ll be glad you did.
What are your long-term financial goals? Let us know in the comments below!
