Setting goals and actually achieving them
How to avoid a Christmas debt hangover
October 9, 2019
Set your course with goals and a budget
October 9, 2019If you really want to get ahead, you need to have a plan. Think of a financial goal as a destination and a plan as your roadmap for getting there. Goals need to be realistic and achievable if you want to actually get there. So how do you set achievable goals?
It starts with a budget
To set a realistic goal you need to know what you’re working with. A budget can be as detailed or as quick and easy as you like, as long as it’s relatively accurate.
List out all your expenses, both non-discretionary costs such as housing, food, utilities, insurances and transport, and discretionary expenses like entertainment, gifts and donations. Deduct the annual total from your annual take home income and you will hopefully have an amount left over available for saving. If you need help with this task, use our budget calculator.
Cost out your goal
The next step is to cost out your goal. MoneySmart’s savings goal calculator can help you do this. For example, you want to save $25,000 for a new car and your budget says you can save $400 a fortnight. Use the savings goal calculator to work out that, with interest of 2% pa, it will take you 2 years and 5 months to make your goal a reality.
You are more likely to achieve your goal if you cost it out and write it down. Transferring your savings into a separate high-interest savings account quarantines them, so you’ll be less likely to accidentally spend the money.
Goals and budgeting go hand in hand
Using the example above, let’s say you really want to buy that new car within 2 years. Changing the parameters slightly, the calculator tells you that you’ll need to save $1,020.14 a month which is about $471 a fortnight.
With this information, you can go back to your budget to see if there are any discretionary expenses you are willing to reduce to reach your goal sooner.
Saving for more than one goal at a time
If your budget permits, you may be able to save for more than one goal at a time. Here’s an example of what your plan might look like if you were saving for a short, medium and long-term goal.
Now that you have a plan, you could automate your savings directly from your pay and check your plan from time to time to make sure you are on track.
Tip: If you are splitting your pay, have a set amount transferred to your bills and spending account and the balance transferred to your savings. This way pay increases, temporary allowances, etc. will default to savings, not spending.
