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Once you have assessed your financial situation and have a better understanding of it, it is time to sit down and come up with goals to improve your finances.
When coming up with your financial goals, it is important to make sure that the goals that you are setting are SMART:
- Specific – Your goals should be specific as to what you are hoping to accomplish.
- Measurable – You must be able to quantify your goals so that there is a way to measure and track your progress.
- Attainable – Be realistic. Make sure your goals are attainable and that you would be able to accomplish them.
- Relevant – This is the “why” you came up with your goals and what will drive you to succeed.
- Timely – Time is money! So be sure to set deadlines for your goals and go after them.
Here are some financial goals that you will want to consider setting for yourself:
Pay off All of Your Debt – Even If It’s One Debt at a Time
This is one goal that you can and need to set for yourself regardless of how much debt you may have.
Do understand that there are different types of debts, there are good debts (debts that increase your net worth such as a mortgage or an investment) and bad debts (debts that do not increase your net worth such as outstanding credit card balances or a car loan). However, at some point in our lives, all debt is considered bad debt and needs to be paid off so it doesn’t eat into our income.
The long and the short of it is the less debt you have, the more money you will have for savings, investing, and creating more income streams – which would allow you to spend more freely without the concern of accumulating more debt.
Establish an Emergency Fund
It is important to prepare for life’s unexpected moments by having an emergency fund in case you ever lose your job or are faced with a large medical expense. These sudden and unexpected emergencies can be crippling to one’s finances, which is why the rule of thumb for emergency funds is to have at least enough to cover three to six months worth of expenses.
The last thing you want during an emergency is to be accruing additional unnecessary expenses such as late payment or interest penalties.
Create Multiple Income Streams
Even if you are one of the lucky few that earns a high salary from your job, creating additional income streams is key to your financial freedom.
Unfortunately, no matter how good you think you are at your job or how long you have been with the company, everyone is disposable. Having multiple income streams serves as your insurance in case one or several of your income streams become temporarily unavailable.
However, if all of your income streams are up and running as they should be, then having multiple income streams will help you pay off your debts with ease and put you on a clear path to financial freedom.
Improve Your Credit Score
Your credit score is what most organizations use to make a decision on you. It is one of the factors that banks and credit card companies use to determine the interest rate of your mortgage and credit cards. It is what landlords use to determine if you are financially reliable to rent their apartment. Many employers are also starting to use a modified version of your credit report as part of their background check and screening process to determine if you are a good candidate to hire or not.
Given its importance, one of your financial goals should be to try to get your credit score in the “Excellent” range. To be considered “Excellent,” your credit score needs to be 720 or above. And if your credit score is already in that range, then one of your financial goals should be to maintain it.
The Ultimate Financial Goal
Of course, the ultimate financial goal is to reach true financial freedom in life. Just understand that it has nothing to do with luck and all about setting good financial goals, coming up with a concrete plan, having a solid budget, and the dedication to getting it done. It will take work but it will happen as long you make the time and effort. How long it takes is entirely up to you.
Are you working towards any financial goals? Share them with me in the comment section below.