Setting short-term, mid-term, and long-term financial goals is an important step toward becoming financially
secure. If you aren’t working toward anything specific, you’re likely to spend more than you should. You’ll then
come up short when you need money for unexpected bills, not to mention when you want to
retire. You might get stuck in a vicious cycle of credit card debt and feel like you never have enough cash to get
properly insured, leaving you more vulnerable than you need to be to handle some of life’s major risks.
Annual financial planning gives you an opportunity to formally review your goals, update them, and review your
progress since last year. If you’ve never set goals before, this planning period gives you the opportunity to
formulate them for the first time so you can get—or stay—on firm financial footing.
Proper financial and retirement planning starts with goal setting, including short-, intermediate-, and
Key short-term goals include setting a budget and starting an emergency fund.
Medium-term goals should include key insurances, while long-term goals need to be focused on retirement.
Here are goals, from near-term to distant, to help you learn to live comfortably within your means and reduce your
Short-Term Financial Goals
Setting short-term financial goals can give you the confidence boost and foundational knowledge you need to
achieve larger goals that will take more time. These first steps are relatively easy to achieve. While you can’t
make $2 million appear in your retirement account right now, you can sit down and create a budget in a few hours,
and you can probably save a
decent emergency fund in a year.
Short-term financial goals that help right away and get you on track to achieving longer-term goals:
Establish a Budget
You can’t know where you are going until you really know where you are right now. That means setting up a
budget. You might be shocked at how much money is slipping through the cracks each month.
An easy way to track your spending is to use a free budgeting program like Mint (mint.com). It will combine the
information from all your accounts into one place and let you label each
expense by category. You can also create a budget the old-fashioned way by going through your bank statements and
bills from the last few months and categorizing each expense with a spreadsheet or on paper.
You might discover that going out to eat with your coworkers every day is costing you $315 a month, at $15 a meal
for 21 workdays. You might learn that you’re spending another $100 per weekend going out to eat with your
significant other. Once you see how you are spending your money, you can make better decisions, guided by that
information, about where you want your money to go in the future. Is the enjoyment and convenience of eating out
worth $715 a
month to you? If so, great, as long as you can afford it. If not, you’ve just discovered an easy way to save money
every month. You can look for ways to spend less when you dine out, replace some restaurant meals with homemade
ones, or do a combination of the two.
Create an Emergency Fund
An emergency fund is money you set aside specifically to pay for unexpected expenses. To get started, $500 to
$1,000 is a good goal. Once you meet that goal, you’ll want to expand it so that your emergency fund can cover
larger financial difficulties, like unemployment.
Try to save at least three months worth of expenses to cover your financial obligations and basic needs, but
months worth, especially if you are married and work for the same company as your spouse or if you work in an area
with limited job prospects. Finding at least one thing in your budget to cut back on can help fund your emergency
Another way to build emergency savings is through de-cluttering and organizing.
You can make extra money by selling unneeded items on eBay or Craigslist or holding a yard sale. Consider turning
into part-time work where you can devote that income to savings.
Consider opening a savings account and setting up an automatic transfer for the amount you’ve
determined you can save each month (using your budget) until you hit your emergency fund goal. If you get a
bonus, tax refund, or even an ‘extra’ monthly paycheck—which happens two months out of the year if you are paid
biweekly—save that money as soon as it comes into your checking account. If you wait until the end of the month to
transfer that money, the odds are high that it will get spent instead of saved,” she says.
While you probably have other savings goals, too, like saving for retirement, creating an emergency fund should be
a top priority. It’s the savings account that creates the financial stability you need to achieve your other
Pay Off Credit Cards
Experts disagree on whether to pay off credit card debt or create an emergency fund first. Some say that you
should create an emergency fund even if you still have credit card debt because, without an emergency fund, any
unexpected expense will send you further into credit card debt. Others say you should pay off credit card debt
first because the
interest is so costly that it makes achieving any other financial goal much more difficult. Pick the philosophy
that makes the most sense to you, or do a little of both at the same time.
As a strategy for paying off credit card debt, consider listing all your debts by interest rate from
lowest to highest, then paying only the minimum on all but your highest-rate debt. Use any additional funds you
have to make extra payments on your highest-rate card.
The method is called by many experts as "the debt avalanche". Another method to consider
"the debt snowball".
With the snowball method, you pay off your debts in order of smallest to largest, regardless of the interest rate.
The idea is that the sense of accomplishment you get from paying off the smallest debt will give you the momentum
to tackle the next-smallest debt, and so on until you’re debt-free.
Debt negotiation or settlement may be an option for those with $10,000 or more in unsecured debt (such
as credit card debt) who can’t afford the required minimum payments. Companies that offer these services are
regulated by the Federal Trade Commission and work on the consumer’s behalf to cut debt by as much as 50% in
exchange for a fee, typically a percentage of the total debt or a percentage of the amount of debt reduction,
which the consumer should only pay after a successful negotiation.
Consumers could get out of debt in two to four years this way. The drawbacks are that debt settlement can hurt
your credit score, and creditors can take legal action against consumers for unpaid accounts.
Bankruptcy should be a last resort because it destroys your credit rating for up to 10 years.
Mid-Term Financial Goals
Once you’ve created a budget, established an emergency fund, and paid off your credit card debt—or at least made a
good dent in those three short-term goals—it’s time to start working toward mid-term financial goals. These goals
will create a bridge between your short- and long-term financial goals.
Goals to create a bridge between your short- and long-term financial goals:
Get Life Insurance and Disability Income Insurance
Do you have a spouse or children who depend on your income? If so, you may need life insurance to provide for them
case you pass away prematurely. Term life insurance is the least complicated and least expensive type of life
insurance and will meet most people’s insurance needs. An insurance broker can help you find the best price on a
policy. Most term life insurance requires medical underwriting, and unless you are seriously ill, you can probably
find at least one company that will offer you a policy.
Also, consider disability insurance in place to protect your income while you are
working. Most employers provide this coverage. If they don’t, individuals can obtain it themselves until
Disability insurance will replace a portion of your income if you become seriously ill or injured to the point
where you can’t work. It can provide a larger benefit than Social Security disability income, allowing you (and
your family, if you have one) to live more comfortably than you otherwise could if you lose your ability to earn
an income. There will be a waiting period between the time you become unable to work, and the time your insurance
benefits will start to pay out, which is another reason why having an emergency fund is so important.
Pay Off Student Loans
Student loans are a major drag on many people’s monthly budgets. Lowering or getting rid of those payments can
free up cash that will make it easier to save for retirement and meet your other goals. One strategy that can help
you pay off your student loans is refinancing into a new loan with a lower interest rate. But beware: If you
refinance federal student loans with a private lender, you may lose some of the benefits associated with federal
student loans, such as income-based repayment, deferment, and forbearance, which can help if you fall on
If you have multiple student loans and won’t stand to benefit from consolidating or refinancing them, the debt
avalanche or debt snowball methods can help you pay them off faster.
Consider Your Dreams
Mid-term goals can also include goals like buying a first home or, later on, a vacation home. Maybe you already
have a home and want to upgrade it with a major renovation—or start saving for a larger place. College for your
children or grandchildren—or even saving for when you do have children—are other examples of mid-term goals.
Once you've set one or more of these goals, start figuring out how much you need to save to make a dent in
reaching them. Visualizing the type of future you want is the first step toward achieving it.
Long-Term Financial Goals
The biggest long-term financial goal for most people is saving enough money to retire. The common rule of thumb
that you should save 10% to 15% of every paycheck in a tax-advantaged retirement account like a 401(k), 403(b), or
Roth IRA is a good first step. But to make sure you’re really saving enough, you need to figure out how much
you'll actually need to retire.
If you are self-employed, a CPA can assist you in setting up a SEP IRA which can be more than 10 times
more a year put away for retirement that a traditional IRA.
Estimate Your Retirement Needs
You can do a quick back-of-the-envelope calculation to estimate your retirement readiness:
Estimate your desired annual living expenses during retirement. The budget you created when you started on
your short-term financial goals will give you an idea of how much you need. You may need to plan for higher
healthcare expenses in retirement.
Subtract income you will receive. Include Social Security, retirement plans, and pensions. This will leave you
with the amount that needs to be funded by your investment portfolio.
Estimate how much in retirement assets you need for your desired retirement date. Base this on what you
currently have and are saving on an annual basis. An online retirement calculator can do the math for you. If 4%
or less of this balance at the time of retirement covers the remaining amount of expenses that your combined
Social Security and pensions do not cover, you are on track to retire.
A 56-Year-Old Couple Who Wants to Retire in 10 Years
|Desired annual living expenses ||$ 65,000 || |
|Husband Social Security @66 ||(24,000) ||$2,000/mo|
|Wife Social Security @66 ||(24,000) ||$2,000/mo|
|Remaining needs (to come from investments) || 17,000 || |
|Total investments needed to fund remaining needs, assuming a 4% withdrawal rate
($17,000/.04)) ||425,000 || |
|Current 401(k)/IRA balance (combined, both spouses) ||(250,000) || |
|Additional savings needed over the next 10 years* ||175,000 ||($17,500/year; about $1,460/month)|
For simplicity, we have not included the rate of return that would be earned over the next 10 years on the current
Increase Retirement Savings With These Strategies
For most people who have an employer-sponsored retirement plan, the employer will usually match a percentage of
what you are paid.
They might match 3% or even 7% of your paycheck. You can get a 100% return on your investment if you contribute
enough to get your full employer match, and this is the most important step to take to fund your retirement.
Sadly, most people do not put money into their retirement plan because either they ‘can’t afford to’ or they are
‘afraid of the stock
market. They miss out on what one would call a ‘no-brainer’ return”.
Make IRA contributions at the beginning of the year as opposed to the end, when most people tend to do so, to give
the money more
time to grow and give yourself a larger amount to retire on.
You probably won’t make perfect, linear progress toward achieving any of your goals, but the important thing is
not to be perfect but to be consistent. If you get hit with an unexpected car repair or medical bill one month and
can’t contribute to your emergency fund but have to take money out of it instead, don’t beat yourself up; that’s
what the fund is there for. Just get back on track as soon as you can.
The same is true if you lose your job or get sick. You’ll have to create a new plan to get through that difficult
period, and you may not be able to pay down debt or save for retirement during that time, but you can resume your
original plan—or perhaps a revised version—once you come out on the other side.
That’s the beauty of annual financial planning: You can review and update your goals and monitor your progress in
reaching them throughout life’s ups and downs. In the process, you will find that both the small things you do on
a daily and monthly basis and the large things you do every year and over the decades will help you achieve your
Every indivudal should have a CPA on their side in preparing for retirement. Please consider contacting us so we
may be able to listen to your
financial goals for the future and perhaps offering solid advice to achieving them.