How to Set Effective Financial Goals

Marissa Mah, B.Comm., LL.B., LL.M. - Jan 08, 2024
Start the year off strong! Here are a few tips on how to set effective financial goals, so that you can then determine how to make them happen
Man with bike looking to horizon

If you want to go somewhere, the only way to determine what direction to take is to first figure out where you are going.

This is especially true when crafting a financial plan. Before you can determine what steps you need to take to secure your financial dreams, you need to figure out what those dreams actually are!

This is where effective financial goal-setting comes into play.

Simply put, a goal is something that you want to accomplish. It represents what you want to get, have, or achieve in the future. Likewise, financial goals are the things you want in the future that are related to or require money.

For example, a person’s financial goals might include:

  • Saving for retirement
  • Buying a house
  • Paying for your child’s college/university/other education
  • Helping your child with a down payment for a home
  • Buying an investment property
  • Taking a dream vacation
  • Paying for caregiving expenses for yourself or loved ones
  • Financing a wedding
  • Many more

For some, setting financial goals are easy – you may already know exactly what your goals are. But for many of us, it can actually be somewhat difficult to figure out precisely what we want. Here are a few tips on how to set effective financial goals, so that you can then determine how to make them happen.

1) Identify what is most important to your financial future

One way to identify financial goals is to practice a useful thought experiment.

Ask yourself:

“If I could imagine my ideal life in the future, what would it look like? How would things be different from how they are now?”

Think about…

  • What would I be doing? How would I spend my time?
  • Where would I be living?
  • Who would be with me?
  • What would I be excited about?
  • What would I worry about?

Once you’ve taken the time to paint a picture of this future for yourself, you can then identify which of the most important components of that life will require money to achieve.

Perhaps you envision yourself married to your partner and living in a beautiful new house. Unless you are already married and own that house, your financial goals probably include saving for a down payment and financing wedding expenses.

Or perhaps you see yourself retired and taking that trip across Europe that you’ve always dreamed of. Sounds like saving for retirement and vacation planning are important financial goals for you.

Or maybe you see yourself happily retired, but you worry about burdening your loved ones if you face an unexpected health crisis. Saving for personal health and caregiving expenses is probably quite important to you.

Whatever you envision, there will always be components of that future which will require you to consider your available financial resources. You can therefore use those considerations to identify your most important financial goals.

2) Consider the time frame

In the examples above, the identification of ‘what is most important’ might depend on what time frame you are considering.

For instance, saving for a mortgage down payment might be a very important goal for you in the next 5 years… but when you consider the next 30 years, saving for retirement is probably pretty important too!

Or maybe retirement is your main goal in the next 5 years… so if you consider the next 30 years, perhaps saving for personal health and caregiving expenses, or making plans for the succession of your estate, are most important to you.

Therefore, breaking down the above thought experiment into different ‘time frames’ can be quite helpful for further refining your financial goals.

Indeed, you can repeat the thought experiment by asking the same questions with the following time considerations:

e.g., “If I could imagine my ideal life in the future, what would it look like…”

  • 5 years from now? (Shortterm)
  • 510 years from now? (Medium-term)
  • 10+ years from now? (Longterm)

By doing this, you can much more clearly stratify your financial goals by these short, medium, and long-term time frames. In this way, you will be able to better determine not only what is most important to you, but also how much time you have to achieve it.

3) Get specific with the numbers

Before you can figure out how to achieve your most important time-limited financial goals, you need to better understand exactly what it is that you hope to achieve. You need to get specific about how much money is required to make your goals a reality.

Saving to buy a house? How big do you intend the mortgage to be? Planning for a $500,000 mortgage is quite different from planning for a $3,000,000 mortgage.

Aiming to retire in 10 years? What are your living expenses going to be, and how much extra money do you want to spend? Retiring with $40,000 a year for spending is quite different from planning to spend $100,000 a year.

Notably, in both of the above examples, none of the provided numbers are ‘better’ or ‘worse’ than the others… it all depends on what is most important to you and what you want.

Taking the time to precisely calculate what it would take to achieve what you want will make the next steps of your financial journey as clear and straightforward as possible.

Moving towards your destination

By being as specific as possible about what you want, you can much more accurately assess whether your current financial goals are achievable under your current time frame – and if so, how you can start moving in that direction (i.e., developing a comprehensive financial plan).

But don’t worry: if any of the above steps still seem difficult, or if your financial goals are still unclear, you’re not alone. Many of us struggle to figure these things out at first – which is one reason why having the advice of a trusted investment advisor can make a world of difference.

Whether you need more help with goal-setting, or if you are ready to take action on exactly what you know you want to achieve, we would be delighted to speak with you about developing a plan to make your financial goals a reality.